Owens & Minor (OMI)

Medical supply and logistics company Owens & Minor (NYSE:OMI) missed Wall Street’s revenue expectations in Q1 CY2025, with sales flat year on year at $2.63 billion. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $11 billion at the midpoint. Its non-GAAP profit of $0.23 per share was 14.5% above analysts’ consensus estimates.

Company Overview

With roots dating back to 1882 and operations spanning approximately 80 countries, Owens & Minor (NYSE:OMI) is a healthcare solutions company that manufactures medical supplies, distributes products to healthcare providers, and delivers medical equipment directly to patients.

Healthcare distributors operate scale-driven business models that thrive on high volumes. Their recurring revenue streams from contracts with hospitals, pharmacies, and healthcare providers provide stability, but profitability can be squeezed by powerful stakeholders on both sides (suppliers and customers), pricing pressures, and regulatory changes. Looking ahead, the sector is positioned for growth due to increasing demand for healthcare services driven by an aging population and advancements in medical technology. However, rising operational costs, potential drug pricing reforms, and supply chain vulnerabilities present potential headwinds. Additionally, the push for digitalization and value-based care creates opportunities for innovation but requires significant investment to remain competitive.

Owens & Minor's main competitors include Cardinal Health, Inc. and Medline Industries, Inc., which are major nationwide manufacturers that also provide distribution services. In the medical products space, they compete with Hogy Medical, Multigate Medical Products, Mölnlycke Health Care, and the HARTMANN Group. In the Patient Direct segment, competitors include AdaptHealth Corp., Lincare, Rotech, Aerocare, Inogen, and Viemed Healthcare, Inc.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $10.72 billion in revenue over the past 12 months, Owens & Minor has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Owens & Minor’s sales grew at a tepid 3.6% compounded annual growth rate over the last five years. This was below our standard for the healthcare sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Owens & Minor’s annualized revenue growth of 3.2% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

This quarter, Owens & Minor’s $2.63 billion of revenue was flat year on year, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 4.2% over the next 12 months, similar to its two-year rate. This projection is underwhelming and suggests its newer products and services will not accelerate its top-line performance yet.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Owens & Minor was profitable over the last five years but held back by its large cost base. Its average operating margin of 1.2% was weak for a healthcare business.

Looking at the trend in its profitability, Owens & Minor’s operating margin decreased by 5.9 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 2.9 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

This quarter, Owens & Minor’s breakeven margin was in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Owens & Minor’s EPS grew at an astounding 20.7% compounded annual growth rate over the last five years, higher than its 3.6% annualized revenue growth. However, we take this with a grain of salt because its operating margin didn’t expand and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

In Q1, Owens & Minor reported EPS at $0.23, up from $0.19 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Owens & Minor’s full-year EPS of $1.56 to grow 14.9%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Owens & Minor has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.6%, subpar for a healthcare business.

Taking a step back, we can see that Owens & Minor’s margin dropped by 2.9 percentage points during that time. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s in the middle of an investment cycle.

Owens & Minor burned through $90.76 million of cash in Q1, equivalent to a negative 3.4% margin. The company’s cash burn was similar to its $102.4 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Owens & Minor historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.9%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Owens & Minor’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Owens & Minor reported $59.44 million of cash and $1.95 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $528.7 million of EBITDA over the last 12 months, we view Owens & Minor’s 3.6× net-debt-to-EBITDA ratio as safe. We also see its $74.19 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Owens & Minor beat analysts’ EPS expectations this quarter. We were also glad its full-year revenue guidance was in line with Wall Street’s estimates. On the other hand, its revenue missed and its full-year EPS guidance fell slightly short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock traded up 3.5% to $8 immediately following the results.

Updated: May 15, 2025 at 11:47 PM EDT

Before deciding whether to buy Owens & Minor or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Owens & Minor’s business quality ultimately falls short of our standards. For starters, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing over the next 12 months. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its operating margins are low compared to other healthcare companies.

Owens & Minor’s P/E ratio based on the next 12 months is 4x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $9.75 on the company (compared to the current share price of $7.09).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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