We believeÂ Owens & Minor stock (NYSE:OMI), a global healthcare logistics company, could continue to rally in the near term. OMI stock trades at $22 currently, rising a whopping 4x since the beginning of the year.Â It traded at a pre-Covid high of $7 in February, and it is 202% above that level now. Also, OMI stock has gained 272% from the low of $6 seen in March 2020, as the Fed stimulus largely put investor concerns about the near-term survival of companies to rest.
Owens & Minorâs business is seeing a strong growth in the current pandemic due to an increased demand for personal protective equipment (PPE). This has led to the company revising its full year earnings outlook to $1.90 at the high end of the range, compared to a $1.20 figure previously. In fact, the $1.20 figure was also revised during the last quarter from $0.60 guidance earlier. As such, with the growth in earnings outlook, OMI stock saw a gradual uptick thus far in 2020. After the recently provided outlook, OMI stock sky-rocketed 47% to $20 in a single trading session on Sep 24. Despite the strong rally in OMI stock this year, we believe that the stock has more room for growth in the near future. Our conclusion is based on the company specific triggers, such as growth in PPE demand as well as taking into account the companyâs provided earnings outlook. We compare Owens & Minorâs stock performance during the current crisis with that during the 2008 recessionÂ in an interactive dashboard analysis.
2020 Coronavirus Crisis
Timeline of 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500Â drops 34%Â from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesnât help that oil prices crash in mid-March amid Saudi-led price war
- From 3/24/2020: S&P 500Â recovers 50%Â from the lows seen on Mar 23, as the Fedâs multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
In contrast, hereâs how Owens & Minor and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 â 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)
Owens & Minor vs S&P 500 Performance Over 2007-08 Financial Crisis
OMI stock declined from levels of around $19 in September 2007 (pre-crisis peak for the markets) to levels of around $17 in March 2009 (as the markets bottomed out), implying OMI stock lost a mere 12% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of about $22 in early 2010, rising by 30% between March 2009 and January 2010. In comparison, the S&P 500 Index saw a decline of 51%, followed by a recovery of 48%.
Owens & Minorâs Lackluster Fundamentals
Owens & Minorâs Revenues declined from $9.8 billion in 2015 to $9.2 billion in 2019, owing to customer non-renewals after issues with servicing back in 2017 and 2018. The company posted a loss of $7.28 per share and $1.03 per share on GAAP basis in 2018 and 2019 respectively, compared to earnings of $1.65 in 2015. The companyâs Q2 2020 revenues were 24% below the level seen a year ago, and the EPS figure of $0 in Q2 2020 compares with a loss of $0.16 per share in the prior year quarter. This can largely be attributed to deferment of elective surgeries in Q2.
However, things look bright as we look forward with resumption of elective surgeries, and continued growth in PPE demand. While Owens & Minor total revenue could see a high-single-digit decline for the full year, at the mid-point of its guidance, the EPS of $1.75 on an adjusted basis would imply a 3x growth from the $0.60 figure in 2019.
Does Owens & Minor Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?
Owens & Minorâs total debt increased from $0.6 billion in 2016 to $1.3 at the end of Q2 2020, while its total cash decreased from $185 million to $101 million over the same period. The company also generated $150 million in cash from its operations in the first half of 2020, and it appears to be in a reasonable position to weather the crisis.
Phases ofÂ Covid-19 crisis:
- Early- to mid-March 2020:Â FearÂ of the coronavirus outbreak spreading rapidly translates intoÂ reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020:Â Fed stimulusÂ suppresses near-term survival anxiety
- May-June 2020:Â Recovery of demand, with gradual lifting of lockdowns â no panic anymore despite a steady increase in the number of cases
- July-September 2020: Poor Q2 results for many companies, but continuedÂ improvement in demandÂ andÂ a decline in the number of new casesÂ and progress with vaccine development buoy expectations
Going by the current trends and continued growth in demand for PPE, we believe that OMI stock has more room for growth in the near future.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.