On Friday, Owens & Minor (NYSE:OMI) received an upgrade from Citi, as the firm shifted its stance from Neutral to Buy, albeit with a reduced price target of $19.00, down from the previous $24.00. The decision comes after a notable 40% drop in the company's shares since the first quarter earnings report.
Citi's revised outlook is based on the assessment that the recent sell-off in Owens & Minor's stock has been excessive. The company has demonstrated strong performance in its core P&HS (Products & Healthcare Services (NASDAQ:HCSG)) business, and the reduction in PPE (Personal Protective Equipment) inventory levels appears to have stabilized. This momentum is expected to continue, providing a favorable position for the company.
Additionally, the possibility of Chinese tariffs presents a potential advantage for Owens & Minor's products manufactured in the Americas. The firm also notes that despite recent headlines concerning GLP-1, the Patient Direct segment of the company is growing faster than the market, which is anticipated to persist.
Citi's analysis suggests that the financial forecasts for FY24 carry limited risk. The new price target of $19.00 is based on a forward P/E multiple of 9.3x for FY25 earnings, which corresponds to a 6.0x FY25 adjusted EBITDA multiple. This valuation represents a significant discount compared to the valuation multiples of Owens & Minor's peers and its own historical valuation metrics.
The upgrade reflects a positive outlook for investors with a higher tolerance for risk, as indicated by the maintained High-Risk designation in the Buy rating.
In other recent news, Owens & Minor, a global healthcare solutions company, reported a 4% increase in revenue to $2.6 billion in the first quarter of 2024, with a gross profit of $536 million. Despite challenges such as a cyber incident and implementing a new system impacting cash flow, adjusted operating income rose by over 20% to $57 million, with adjusted EBITDA reaching $116 million.
In executive developments, the company promoted Snehashish Sarkar to Executive Vice President and Chief Information Officer, signaling a commitment to enhancing its technological capabilities.
Baird and BofA Securities have revised their price targets for Owens & Minor stock. Baird decreased its target to $19.00 from $20.00, while BofA Securities reduced its target to $18 from $19, both firms maintaining their respective Neutral and Underperform ratings. These adjustments reflect broader challenges within the sector and a cautious overall outlook for the company.
The company's Products & Healthcare Services segment grew by 3%, and the Patient Direct segment saw a 5% increase. Analysts from Baird and BofA Securities emphasized the potential in these business segments but suggested the need for stabilization and increased confidence from the investment community.
InvestingPro Insights
In light of Citi's upgrade of Owens & Minor (NYSE:OMI), real-time data from InvestingPro reveals a market capitalization of $1.12 billion and a forward-looking P/E ratio adjusted for the last twelve months as of Q1 2024 at 8.49, suggesting a more attractive valuation than the current trailing negative P/E of -28.49. Additionally, the company's revenue growth has been modest at 3.5% over the last twelve months as of Q1 2024.
InvestingPro Tips highlight that Owens & Minor is expected to see net income growth this year, which aligns with Citi's positive stance on the company's core business performance. Moreover, the company is seen as a prominent player in the Healthcare Providers & Services industry, trading at a low revenue valuation multiple. These factors may provide a compelling case for investors, especially considering the stock's significant price drop over the last three months.
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