Stock Analysis: Owens & Minor, Inc. (OMI)

Linked here is a detailed quantitative analysis of Owens & Minor, Inc. (OMI). Below are some highlights from the above linked analysis:

Company Description: Owens & Minor Inc. is a leading domestic distributor of medical and surgical supplies to the acute care market, a health care supply chain management company, and a direct-to-consumer (DTC) supplier of testing and monitoring supplies for diabetes.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

OMI is trading at a discount to 1.) and 3.) above. The stock is trading at a 13.9% discount to its calculated fair value of $33.91. OMI earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

OMI earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. OMI earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 12 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

OMI earned a Star in this section for its NPV MMA Diff. of the $3,857. This amount is in excess of the $2,300 target I look for in a stock that has increased dividends as long as OMI has. If OMI grows its dividend at 15.1% per year, it will take 4 years to equal a MMA yielding an estimated 20-year average rate of 4.02%. OMI earned a check for the Key Metric 'Years to >MMA' since its 4 years is less than the 5 year target.

Other: OMI is a member of the Broad Dividend Achievers™ Index.

Conclusion: OMI earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks OMI as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $35.33 before OMI's NPV MMA Differential decreased to the $2,300 minimum that I look for in a stock with 12 years of consecutive dividend increases. At that price the stock would yield 2.00%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,300 NPV MMA Differential, the calculated rate is 13.4%. This dividend growth rate is less than the 15.1% used in this analysis, thus providing a margin of safety. OMI has a risk rating of 1.75 which classifies it as a medium risk stock.

OMI should see increasing demand for its medical/surgical supplies based on our aging society. The company has been focused on developing new services and cost control. OMI expects its new third-party logistics business to achieve break-even by year-end 2010 and its ambulatory surgery center initiative should start contributing to operating earnings in 2011. Long-term health care reform should eventually lead to higher utilization of hospitals. Although OMI is trading below my buy price of $33.91, its erratic cash flows, including negative free cash flow in 3 of the last 10 years, will keep me on the sideline. For additional information, including the stock's dividend history, please refer to its data page.

http://www.thediv-net.com/