Investments In Home Healthcare And Automation Will Build Value

Key Takeaways

• Growth in home-based healthcare, investments in operational efficiency, and focus on specialized care boost recurring revenues and support long-term margin expansion.
  
• Shifting towards proprietary products and strategic acquisitions increases pricing power, enhances sales mix, and builds resilience against supply chain or regulatory risks.
  
• New tariffs, foreign exchange volatility, high debt, potential divestitures, and increased customer bargaining power all significantly threaten Owens & Minor's profitability and long-term growth prospects.

Catalysts

Operates as a healthcare solutions company worldwide.

• Expansion of the Patient Direct segment-especially in sleep, wound, ostomy, urology, and home respiratory care, coupled with investments to improve resupply adherence and collection rates-positions the company to benefit from the global trend towards more outpatient and home-based healthcare, enhancing revenue visibility, growing recurring sales, and supporting long-term revenue and net margin expansion.
  
• Increasing prevalence of chronic diseases (such as diabetes and respiratory illnesses) is driving robust demand for specialized at-home care and supply solutions, evidenced by double-digit growth in several therapy categories and anticipated ongoing strength in sleep and diabetes. This should support sustained revenue growth and higher-margin sales mix.
  
• Recent investments in logistics automation, new state-of-the-art distribution centers, and AI-driven inventory management are expected to lower costs, increase operational efficiency, and enhance scale in response to growing demand, which should improve EBITDA margins and long-term earnings potential.
  
• The company's strategic push to grow proprietary/branded product penetration through its distribution channel and the planned acquisition of Rotech are set to increase pricing power and shift revenue mix toward higher-margin products and services, positively impacting net margins and future earnings.
  
• Owens & Minor is actively responding to supply chain risk and regulatory/tariff changes by leveraging a diversified manufacturing footprint and strategic sourcing, enabling price increases and alternative supply options; this adaptability should protect gross profit dollars, stabilize margins, and increase resilience to external shocks.

Owens & Minor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Owens & Minor's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -3.4% today to 0.5% in 3 years time.
• Analysts expect earnings to reach $55.8 million (and earnings per share of $1.34) by about July 2028, up from $-365.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.0x on those 2028 earnings, up from -1.7x today. This future PE is lower than the current PE for the US Healthcare industry at 21.0x.
• Analysts expect the number of shares outstanding to decline by 0.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.04%, as per the Simply Wall St company report.

Owens & Minor Future Earnings Per Share Growth

Risks

• The imposition of new tariffs on imported medical products, especially from China and Thailand, creates a $100 million to $150 million annual cost exposure in Owens & Minor's Products & Healthcare Services segment, which operates at less than 1% profit margin, potentially driving margin compression and risking both revenue and earnings if customers resist pass-through pricing or if competitors absorb more costs to win market share.
  
• Volatility in foreign exchange rates, particularly affecting Asian currencies where significant sourcing and manufacturing occurs, has already led to gross margin declines and poses an ongoing risk to both revenue stability and net earnings if currency movements remain unpredictable or adverse.
  
• High debt levels, which will increase further with the closing of the Rotech acquisition (with debt priced 50bps higher than expected), pressure the company's ability to invest in organic growth, force a focus on debt reduction over strategic initiatives, and result in increased interest expenses eroding net earnings.
  
• Potential sale of the Products & Healthcare Services segment introduces operational distraction and uncertainty, which may impact execution, reduce focus on customer service, and hinder long-term strategic investments, ultimately affecting both top-line growth and margin stability.
  
• Increasing customer concentration and growing bargaining power among large health systems (some of which have stated they refuse product price hikes) could prevent full tariff-related cost recovery, drive greater price pressure on Owens & Minor, and amplify the risk of lost sales, directly threatening long-term revenue growth and profitability.

Valuation

• The analysts have a consensus price target of $9.5 for Owens & Minor based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $13.0, and the most bearish reporting a price target of just $7.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.7 billion, earnings will come to $55.8 million, and it would be trading on a PE ratio of 17.0x, assuming you use a discount rate of 10.0%.
• Given the current share price of $8.1, the analyst price target of $9.5 is 14.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.