Omnicell (OMCL)

Healthcare tech company Omnicell (NASDAQ:OMCL) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 9.6% year on year to $269.7 million. On the other hand, next quarter’s revenue guidance of $275 million was less impressive, coming in 1.8% below analysts’ estimates. Its non-GAAP profit of $0.26 per share was 27.1% above analysts’ consensus estimates.

Company Overview

Driven by the vision of an "Autonomous Pharmacy" with zero medication errors, Omnicell (NASDAQ:OMCL) provides medication management automation and adherence tools that help healthcare systems and pharmacies reduce errors and improve efficiency.

The healthcare technology industry focuses on delivering software, data analytics, and workflow solutions to hospitals, clinics, and other care facilities. These companies enable providers to streamline operations, optimize patient outcomes, and transition to value-based care models. They boast subscription-based revenues or long-term contracts, providing financial stability and growth potential. However, they face challenges such as lengthy sales cycles, significant upfront investment in technology development, and reliance on providers’ adoption of new tools, which can be hindered by budget constraints or resistance to change. Over the next few years, the sector is poised for growth as providers increasingly prioritize digital transformation and efficiency in response to rising healthcare costs and patient demand for seamless care. Tailwinds include the growing adoption of AI-driven tools for patient engagement and operational improvements, government incentives for digitization, and the expansion of telehealth and remote patient monitoring. However, headwinds such as tightening hospital budgets, cybersecurity threats, and the fragmented nature of healthcare systems could slow adoption.

Omnicell's competitors include BD (Becton, Dickinson and Company) (NYSE:BDX) with its Pyxis medication dispensing systems, Baxter International (NYSE:BAX) with its DoseEdge IV workflow solutions, and privately-held companies like ARxIUM and Swisslog Healthcare that offer pharmacy automation systems.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $1.14 billion in revenue over the past 12 months, Omnicell is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Omnicell’s sales grew at a mediocre 4.2% compounded annual growth rate over the last five years. This fell short of our benchmark for the healthcare sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Omnicell’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.4% annually.

We can dig further into the company’s revenue dynamics by analyzing its most important segment, Product. Over the last two years, Omnicell’s Product revenue averaged 12% year-on-year declines. This segment has lagged the company’s overall sales.

This quarter, Omnicell reported year-on-year revenue growth of 9.6%, and its $269.7 million of revenue exceeded Wall Street’s estimates by 3.7%. Company management is currently guiding for flat sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

Omnicell was profitable over the last five years but held back by its large cost base. Its average operating margin of 1.1% was weak for a healthcare business.

Analyzing the trend in its profitability, Omnicell’s operating margin decreased by 3.8 percentage points over the last five years, but it rose by 3.3 percentage points on a two-year basis. Still, shareholders will want to see Omnicell become more profitable in the future.

In Q1, Omnicell generated an operating profit margin of negative 4.3%, up 4.6 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Omnicell, its EPS declined by 7.6% annually over the last five years while its revenue grew by 4.2%. This tells us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into Omnicell’s earnings to better understand the drivers of its performance. As we mentioned earlier, Omnicell’s operating margin improved this quarter but declined by 3.8 percentage points over the last five years. Its share count also grew by 6.8%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q1, Omnicell reported EPS at $0.26, up from $0.03 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Omnicell’s full-year EPS of $1.93 to shrink by 4.5%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Omnicell has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 12% over the last five years, better than the broader healthcare sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Omnicell’s margin dropped by 10.5 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Omnicell’s free cash flow clocked in at $10.19 million in Q1, equivalent to a 3.8% margin. The company’s cash profitability regressed as it was 12.9 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Omnicell historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.2%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Omnicell’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Companies with more cash than debt have lower bankruptcy risk.

Omnicell is a profitable, well-capitalized company with $386.8 million of cash and $207.6 million of debt on its balance sheet. This $179.2 million net cash position is 12.5% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Omnicell blew past analysts’ EPS expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance missed significantly and its full-year EBITDA guidance fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 9.8% to $27.50 immediately after reporting.

Updated: May 22, 2025 at 11:42 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Omnicell falls short of our quality standards. For starters, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its subscale operations give it fewer distribution channels than its larger rivals.

Omnicell’s P/E ratio based on the next 12 months is 15.7x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $37.50 on the company (compared to the current share price of $28.58).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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