[Updated: 5/27/2021] OMI Inventory Rally
The inventory value of Owens & Minor (NYSE:OMI), a world healthcare logistics firm, has seen a stellar 36% transfer in a single buying and selling session on Could 26, 2021. This may be attributed to the corporate’s long run steerage of $12 billion income by 2026, reflecting over 40% development from the $8.5 billion determine it reported final 12 months. Extra importantly, it expects its adjusted EPS to be round $6.00 by 2026, in comparison with simply $2.26 it reported final 12 months, reflecting a big 2.6x development. Not solely did the corporate information for 2026, it additionally acknowledged that it expects adjusted EPS to be within the vary of $3.00 and $3.50 subsequent 12 months (2022). Observe that 2021 EPS is predicted to be even increased (consensus estimate is $3.97), because of increased demand for private protecting tools (PPE), a rebound in quantity of elective surgical procedures, in addition to elevated pricing. The demand for PPE and Covid-19 associated merchandise will doubtless decline subsequent 12 months because the disaster winds down, impacting the income and earnings for the corporate.
The corporate’s 2026 outlook appears to be like promising and the 36% transfer in a single day tells us how traders perceived this announcement. It’s not the primary time OMI inventory has seen such an increase. The truth is, it’s up a whopping 7x from ranges of $6 seen in March 2020 to $44 at present. Now, is OMI inventory poised to develop additional or is a decline after the latest rise imminent? We consider OMI inventory will proceed to rally within the close to time period, given the sturdy momentum within the inventory, and a strong steerage for each close to time period in addition to long run. Our dashboard – 595% Development In OMI Inventory Since 2018 – summarizes the components that led to a big rally in OMI inventory since 2018.
Taking a look at valuation, on the present value of $44, OMI inventory is buying and selling at 13x its 2022 anticipated adjusted EPS of $3.25 (at midpoint of the corporate’s supplied vary). This compares with ranges of 12x and under seen over the previous few years. Does this make OMI inventory costly? Not likely. Allow us to have a look at the long-term outlook, primarily based on the corporate’s lately supplied steerage. Now, if Owens & Minor earnings develop 2.6x between 2020-2026, the P/E a number of will shrink to 7x from its present degree, assuming the inventory value stays the identical, appropriate?
However that’s what Owens & Minor’s traders are betting is not going to occur! If earnings broaden 2.6x over the subsequent few years, as an alternative of the P/E shrinking from round 13x presently (primarily based on anticipated 2022 earnings) to about 7x, a state of affairs the place the P/E metric falls extra modestly, maybe to about 10x, appears to be like extra doubtless. For context, Owens & Minor has seen a gentle development in P/E a number of from 5x in 2018 to 12x in 2020, given the speedy development in earnings, a development which is more likely to proceed over the approaching years. This could make development in OMI’s inventory value over 35%, to round $60 ranges, doubtless over the approaching years. As such, we consider that regardless of the big rally seen during the last 12 months or so, long run traders can enter into OMI inventory even on the present ranges.
[Updated: 9/29/2020] OMI Inventory Efficiency 2020 vs. 2008 Disaster
We consider Owens & Minor inventory (NYSE:OMI), a world healthcare logistics firm, might proceed to rally within the close to time period. OMI inventory trades at $22 at present, rising a whopping 4x for the reason that starting of the 12 months. It traded at a pre-Covid excessive of $7 in February, and it’s 202% above that degree now. Additionally, OMI inventory has gained 272% from the low of $6 seen in March 2020, because the Fed stimulus largely put investor considerations concerning the near-term survival of corporations to relaxation.
Owens & Minor’s enterprise is seeing a robust development within the present pandemic because of an elevated demand for private protecting tools (PPE). This has led to the corporate revising its full 12 months earnings outlook to $1.90 on the excessive finish of the vary, in comparison with a $1.20 determine beforehand. The truth is, the $1.20 determine was additionally revised over the last quarter from $0.60 steerage earlier. As such, with the expansion in earnings outlook, OMI inventory noticed a gradual uptick so far in 2020. After the lately supplied outlook, OMI inventory sky-rocketed 47% to $20 in a single buying and selling session on Sep 24. Regardless of the sturdy rally in OMI inventory this 12 months, we consider that the inventory has extra room for development within the close to future. Our conclusion is predicated on the corporate particular triggers, akin to development in PPE demand in addition to taking into consideration the corporate’s supplied earnings outlook. We examine Owens & Minor’s inventory efficiency throughout the present disaster with that throughout the 2008 recession in an interactive dashboard evaluation.
2020 Coronavirus Disaster
Timeline of 2020 Disaster So Far:
- 12/12/2019: Coronavirus circumstances first reported in China
- 1/31/2020: WHO declares a world well being emergency.
- 2/19/2020: Indicators of efficient containment in China and hopes of financial easing by main central banks helps S&P 500 attain a document excessive
- 3/23/2020: S&P 500 drops 34% from the height degree seen on Feb 19, as Covid-19 circumstances speed up outdoors China. Doesn’t assist that oil costs crash in mid-March amid Saudi-led value warfare
- From 3/24/2020: S&P 500 recovers 50% from the lows seen on Mar 23, because the Fed’s multi-billion greenback stimulus package deal suppresses near-term survival nervousness and infuses liquidity into the system.
In distinction, right here’s how Owens & Minor and the broader market carried out throughout the 2007/2008 disaster.
Timeline of 2007-08 Disaster
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline similar to Lehman chapter submitting (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 1/1/2010: Preliminary restoration to ranges earlier than accelerated decline (round 9/1/2008)
Owens & Minor vs S&P 500 Efficiency Over 2007-08 Monetary Disaster
OMI inventory declined from ranges of round $19 in September 2007 (pre-crisis peak for the markets) to ranges of round $17 in March 2009 (because the markets bottomed out), implying OMI inventory misplaced a mere 12% from its approximate pre-crisis peak. It recovered publish the 2008 disaster, to ranges of about $22 in early 2010, rising by 30% between March 2009 and January 2010. As compared, the S&P 500 Index noticed a decline of 51%, adopted by a restoration of 48%.
Owens & Minor’s Lackluster Fundamentals
Owens & Minor’s Revenues declined from $9.Eight billion in 2015 to $9.2 billion in 2019, owing to buyer non-renewals after points with servicing again in 2017 and 2018. The corporate posted a lack of $7.28 per share and $1.03 per share on GAAP foundation in 2018 and 2019 respectively, in comparison with earnings of $1.65 in 2015. The corporate’s Q2 2020 revenues have been 24% under the extent seen a 12 months in the past, and the EPS determine of $Zero in Q2 2020 compares with a lack of $0.16 per share within the prior 12 months quarter. This could largely be attributed to deferment of elective surgical procedures in Q2.
Nevertheless, issues look shiny as we glance ahead with resumption of elective surgical procedures, and continued development in PPE demand. Whereas Owens & Minor whole income might see a high-single-digit decline for the complete 12 months, on the mid-point of its steerage, the EPS of $1.75 on an adjusted foundation would suggest a 3x development from the $0.60 determine in 2019.
Does Owens & Minor Have A Enough Money Cushion To Meet Its Obligations By The Coronavirus Disaster?
Owens & Minor’s whole debt elevated from $0.6 billion in 2016 to $1.Three on the finish of Q2 2020, whereas its whole money decreased from $185 million to $101 million over the identical interval. The corporate additionally generated $150 million in money from its operations within the first half of 2020, and it seems to be in an inexpensive place to climate the disaster.
CONCLUSION
Phases of Covid-19 disaster:
- Early- to mid-March 2020: Concern of the coronavirus outbreak spreading quickly interprets into actuality, with the variety of circumstances accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival nervousness
- Could-June 2020: Restoration of demand, with gradual lifting of lockdowns – no panic anymore regardless of a gentle enhance within the variety of circumstances
- July-September 2020: Poor Q2 outcomes for a lot of corporations, however continued enchancment in demand and a decline within the variety of new circumstances and progress with vaccine growth buoy expectations
Going by the present developments and continued development in demand for PPE, we consider that OMI inventory has extra room for development within the close to future.
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