Is Owens & Minor Stock A Buy?

Owens & Minor, Inc. (NYSE:OMI) is a Virginia-based global healthcare logistics company that skyrocketed in value in late February after reporting its quarterly results. Quarterly revenue of $2.36 billion is up 8 percent from the prior year and drew investors interested in medical supplies.

Its personal protective equipment (PPE) is necessary in the current health climate, and that has some investors pondering is Owens & Minor stock a Buy?

The health crisis is one of few events that gained the attention of the public, government, and corporations around the world. And it did so in a virtual heartbeat.

But today’s success doesn’t necessarily translate to the future. As the economy recovers and life returns to normal, there’s a chance we slowly slide back from the current focus on PPE and social distancing.

OMI risks being grouped with other related companies and losing investor interest, even if it remains profitable.

Let’s check Owens & Minor’s temperature to determine if it can heat up investor profits.

Owens and Minor: The Big Picture

Owens and Minor was founded in Richmond, Virginia in 1882 as a drug company, and it bought more companies over the years. These acquisitions have vertically and horizontally integrated the company into a full-service healthcare logistics enterprise in the Fortune 500 and S&P 600.

While the company is over a century old, CEO Ed Pesicka took over the company in March 2019.

And although it grew through acquisitions, it spent 2020 selling some of its global operational assets to optimize its logistics. This makes the company a third-party logistics company for over 4,000 clients across the globe.

Because of its positioning, the 2020 earnings report was strong, and 2021 looks to be more of the same. However, its success is tied to the need for medical supplies in the current health climate, and that means the recovery very well could cause the share price to run into headwinds.

Of course, the company has raised money to lengthen its runway through a $500 million debt offering in March 2021.

That debt comes at a price, we’ll discuss further below in the risks. First, here are some numbers you need to know if considering a buy.

Is Owens and Minor Stock A Buy?

Owens and Minor had a market capitalization over $2 billion in the first quarter of 2021. OMI share price plummeted to a 52-week low of $3.63 during the worst of the 2020 stock market crash and remained largely compressed through the first half of the year. By 2021, the stock had bounced back to the tune of an almost 10x gain.

The company’s fourth quarter earnings report showed $8.48 billion in revenue generated. From that, it earned $1.39 per share for the year. Much of that income ($0.72 earnings per share) came from the fourth quarter.

From a valuation perspective, OMI has a potential upside share price of $35 per share based on a discounted cash flow forecast analysis.

The company maintained its regular quarterly dividend payments when so many other less financially stable companies suspended their shareholder dividends. Still, the OMI dividend is just $0.002 per share, resulting in an annual yield of 0.03 percent. That’s not enough to excite income-oriented investors.

The company predicts it will generate about $9.2 billion in revenue with 15 percent operational overhead. And its overhead is affected by several global issues that we’ll discuss next.

Risks Of Buying Owens and Minor Stock

Owens and Minor recently took out a big chunk of debt. That’s could slow some of the possible share price progression for investors jumping in now as the company must carry a heftier debt load and service higher interest payments.

The company’s global presence exposes it to a lot of foreign taxes and currency fluctuations. All these issues could eat into the bottom line and ultimately stunt investor returns. They’re considerations that shouldn’t be ignored.

It also appears that earnings forecasts for the companies show a declining trend which may not be entirely factored in by the market. The prior quarters had seen a steep rise and some investors may be anticipating a continuation when in fact a decline is on the horizon. When those numbers are reported, OMI share price could be under threat.

Owens & Minor Competitors Are Very Well Capitalized

It’s no surprise that, as a large company in a lucrative industry, Owens and Minor has a slew of well-capitalized rivals. Cardinal Health (CAH), AmerisourceBergen (ABC), and McKesson (MCK) all provide a lot of the same supplies and services to their clients. That puts the company in a tough spot where it competes for the same slice of revenue pie as its better funded peers.

The global presence means it has boots on the ground, so to speak, in local healthcare industries around the world. That will help it better maintain its position, but there’s one last problem to discuss.

The pandemic caused a rush on PPE supplies in general, and that means the raw materials and goods are more expensive than they were in the 2010s. Arguably, the higher cost hurdle means whoever has the deepest pockets will win.

Is Owens and Minor Stock A Buy? The Bottom Line

Owens and Minor is a global healthcare logistics company that has a full suite of products and services to offer clients. This put it in a great position to benefit from the rush toward PPE and health equipment. However, it took a bit longer for its share price to rise alongside other healthcare stocks.

That’s largely because vaccine makers took center stage. But OMI share price finally rose when its earnings reports continued wowing investors throughout the year.

Currently, the growth of earnings is less rosy than had been the case in prior quarters and that should give new investors pause before jumping head first into the stock.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.