We came across a bullish thesis on Owens & Minor, Inc. (OMI) on Substack by Busy Investor Stock Reports. In this article, we will summarize the bulls’ thesis on OMI. Owens & Minor, Inc. (OMI)’s share was trading at $6.84 as of Feb 26th. OMI’s forward P/E was 3.71 according to Yahoo Finance.
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Owens & Minor (OMI) presents a compelling opportunity despite its mundane business model. The company derives about 75% of its revenue from manufacturing essential healthcare supplies like scalpels, bandages, and sterilization containers, while the remaining 25% comes from patient direct services, which include setup, education, and support for its products. OMI’s stock has declined 87% from its 2020 highs, but it now trades at just 0.05x sales, signaling deep value. The company has demonstrated strong operating leverage, with a 10.5% return on invested capital (ROIC) and 13.5% return on capital employed (ROCE) since 1990. Revenue is at all-time highs, and leadership is a key strength—its CEO spent 15 years at Thermo Fisher, overseeing a 10x stock growth. Additionally, OMI benefits from U.S. manufacturing advantages due to tariffs, further enhancing its competitive positioning.
The key concern is whether OMI can improve margins quickly enough to reduce its $1.9 billion in long-term debt, particularly with an additional $1.36 billion coming due in early 2025 from the Rotech acquisition. The success of this turnaround hinges on factors such as earnings momentum, Rotech integration, and identifying potential growth catalysts. While the Rotech acquisition could present near-term turbulence, potentially pressuring free cash flow and raising solvency concerns, this could also create an attractive entry point for investors.
A simple valuation model suggests that by 2027, with 8% annual revenue growth and stable Rotech sales, OMI could reach $12.26 billion in revenue. Assuming a modest 1.5% free cash flow margin, this translates to $184 million in free cash flow. Applying a 10x FCF multiple, the company’s market cap could hit $1.85 billion, offering a potential 260% return in under three years. While challenges remain, OMI’s valuation and leadership make it a stock worth closely watching.
Owens & Minor, Inc. (OMI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 13 hedge fund portfolios held OMI at the end of the third quarter which was 20 in the previous quarter. While we acknowledge the risk and potential of OMI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than OMI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.