Credit Suisse https://www.credit-suisse.com caught up with management at Owens & Minor (OMI) https://owens-minor.com, a global provider of healthcare services, to discuss the company’s thoughts on the guidance raise and recovery for the future.
OMI continues to see PPE demand continuing well into 2021 which the company does not believe will end anytime soon. This demand has allowed OMI to continue to leverage their fixed asset base which will allow for continued margin expansion through an accelerated timeline of production throughput.
In fact, the increased capacity and throughput from the installed asset base is creating an incremental tailwind, which is one of the larger pieces of the guidance raise, in addition to better than expected electives recovery across the country.
Importantly, the components of the guidance raise are not necessarily new drivers but accelerated relative to where the company initially assumed (e.g. benefit from deployment of additional PPI equipment initially anticipated to be an EOY benefit). On September 24th, before the market opened, OMI revised their 2020 adjusted EPS outlook from $1.00-$1.20 to $1.75 to $1.90.
OMI sees operating leverage in global products stepping up sequentially in Q3. In addition to using funds from the government to purchase five machines producing N-95s, OMI has purchased their own machines and is utilizing existing assets underutilized pre-COVID. Significant capacity expansion has allowed OMI to produce in hours what previously took a month. OMI also has ramped up capacity on surgical gowns, isolation gowns, and other PPE.
For 2021, OMI sees the benefit from the continued demand for PPE production volume, associated benefit to margins, and continued improvement in electives. Notably, OMI has already signed a couple of smaller accounts, has retained existing customers, and sees a strong pipeline due to OMI’s substantially improved reputation throughout the pandemic.
Credit Suisse analysts report that their 2020/2021/2022 adjusted EPS estimates are now $1.80/$2.02/$1.62 respectively vs $1.07/$1.23/$1.31 as stated previously. The analysts are maintaining their TP multiple of 8x EV/EBITDA, which according to their 2022 estimate, yields a TP of $22 (vs $18 previously). Risks include an variances around revenue growth and margin trend expectations.
For more information and to provide feedback, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.