On Thursday, BofA Securities adjusted its stance on Omnicell (NASDAQ:OMCL), downgrading the stock from Buy to Neutral. The firm simultaneously raised the price target to $57 from the previous $44. This change follows a substantial 30%+ surge in Omnicell's share value today, which the market has interpreted as a sign of renewed growth in the company's Product revenue segment after several years of decline.
BofA Securities cited a few reasons for the downgrade, noting that while product extensions such as XTAmplify might contribute to incremental sales, there is low visibility into growth. The firm pointed out that most customers have already upgraded to the latest Omnicell cabinets and some are opting to extend the lifespans of their current systems. The lack of a near-term full product launch was also mentioned as a factor leading to more limited visibility into the trajectory of product revenue growth in the coming years.
Despite the downgrade, BofA Securities acknowledges that Omnicell's Advanced services are likely to continue growing and that the company's ongoing expense management efforts should support mid-single digit EBIT growth over the next few years. However, the firm suggests that the stock appears to be fully valued at present, trading at 17.5 times CY25 EBITDA.
The new price target of $57 is based on an 18 times CY25 EBITDA multiple, up from the previous 15 times. This premium multiple over the historical 10-year average of 15 times is justified by Omnicell's shift towards annual recurring revenue, although this is somewhat tempered by the current limited visibility into Product revenue growth, according to BofA Securities.
In other recent news, Omnicell reported mixed results for the third quarter of 2024, with total revenue standing at $282 million. This showed a sequential increase from the previous quarter, but a decline compared to the same period last year. Despite these mixed results, Omnicell has raised its full-year profitability guidance. The company also announced the appointment of Nnamdi Njoku as the new Chief Operating Officer, focusing on operational excellence and a service-based model.
In terms of earnings, GAAP earnings per share increased to $0.19, up from $0.08 in the previous quarter, while non-GAAP earnings per share were $0.56, down from $0.62 year-over-year. Service revenues saw a surge, driven by strong demand for Advanced Services. However, product revenues were slightly up from the previous quarter but significantly down from the previous year, indicating a decrease in automated dispensing system volumes.
Looking forward, the company's full-year 2024 guidance anticipates bookings between $800 million and $875 million, with total revenues expected to be between $1.1 billion and $1.110 billion. Non-GAAP EBITDA is projected to be between $129 million and $134 million, with non-GAAP earnings per share estimated to be $1.65 to $1.72. Omnicell has expressed optimism about market stabilization and the demand for its services, expecting continued financial performance and operational improvements.
InvestingPro Insights
Recent data from InvestingPro adds context to BofA Securities' analysis of Omnicell (NASDAQ:OMCL). The company's market capitalization stands at $2.44 billion, reflecting the recent surge in stock price. This uptick is evident in InvestingPro's data, which shows a remarkable 35.23% return over the past week and an 81.62% return over the last three months.
InvestingPro Tips highlight that Omnicell is currently trading near its 52-week high, with the price at 95.17% of its peak. This aligns with BofA's observation of the stock's recent surge and their view that it may be fully valued. Additionally, an InvestingPro Tip indicates that the company's net income is expected to grow this year, which could support BofA's projection of mid-single digit EBIT growth.
However, it's worth noting that Omnicell operates with a moderate level of debt and was not profitable over the last twelve months, as per InvestingPro Tips. This information provides additional context to BofA's cautious stance on the company's growth visibility.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Omnicell, providing a deeper dive into the company's financial health and market position.
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