The past twelve months have been difficult for Owens & Minor shareholders. The company’s stock price has declined from nearly $35 a year ago to approximately $15 today.
Source: Finviz
While this type of performance has not been pleasing for the company’s continuing shareholders, we believe that there’s a lot to like about Owens & Minor right now.
First of all, the company is one of just 203 dividend-paying stocks in the healthcare sector. The healthcare industry stands out for having an excellent mix of recession resiliency, long-term growth prospects, and barriers to entry for prospective disruptors. Each of these factors strengthens the Owens & Minor investment thesis.
Second, Owens & Minor has an excellent combination of dividend yield and dividend safety for income-oriented investors. The company’s eye-popping 6.8% dividend makes it one of just 407 companies with 5%+ dividend yields in our investment universe.
As you can see, Owens & Minor has some unique characteristics, particularly for dividend investors. The company also just released its financial performance for fiscal 2017.
This article will analyze Owens & Minor’s fourth-quarter earnings release to determine whether the company’s fundamental performance makes it a buy today, or whether it is a value trap and investors should avoid the stock moving forward.
Business Overview
Because of Owens & Minor’s relatively small size (a market capitalization of less than $1 billion), many dividend growth investors are likely unfamiliar with this company. Accordingly, an overview of the company’s business model is warranted before discussing its fourth quarter financial performance.
Owens & Minor is a healthcare logistics company that provides packaged healthcare products for hospitals and other medical centers. The company operates 22 facilities in 15 countries and distributes ~220,000 different medical and surgical supplies to ~4,400 hospital systems worldwide. Owens & Minor was founded in 1882 and is currently headquartered in Richmond, Virginia.
On February 14th, the company released financial results for the fourth quarter and full year of fiscal 2017.
The next section of this article will discuss that earnings release in detail before moving on to discuss Owens & Minor’s valuation and expected total return profile.
Financial Performance Overview
Owens & Minor’s fourth-quarter financial performance beat consensus revenue estimates but disappointed on the bottom line by just a penny.
In the quarter, consolidated revenues of $2.39 billion increased modestly over the $2.37 billion reported in the fourth quarter of 2016. Adjusted net income of $21.0 million (or $0.35 per diluted share) fell noticeably from the $33.4 million (or $0.55 per diluted share) reported last year.
Importantly, Owens & Minor’s fourth-quarter revenue has marked a noticeably turnaround from the depressed revenue reported in the middle of 2017. This trend can be seen in the following slide from the company’s fourth-quarter earnings deck:
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