Owens & Minor, Inc. - A Good Discount Buy In A Struggling Sector

| About: Owens & (OMI)

Summary

Repealing the 2.3% medical device excise tax will see a boost to the MedTech industry.

Solid dividend yield % and lower forward P/E ratio are creating discount buy opportunity.

Recovering quarterly earnings will take stock price out of downtrend.

Political uncertainty in the MedTech industry is reaching a dizzying level, and it's created a world of discount stock prices within the industry. We're talking about previous high flying stocks that have been beaten down by ACA "repeal and replace" verbiage, trade concerns, and the future of Medicare. The question we have to ask ourselves is this: will MedTech continue to scare retail investors off, or will we see a great buying opportunity for companies with excellent balance sheets and huge potential. I submit the latter is true, and it's time to find the best companies in a beaten down industry.

Why MedTech Is On The Rise

MedTech pundits point to the elimination of the medical device excise tax as the major impetus to better days ahead. The repeal of the 2.3% tax on all medical device sales after December 31, 2017, has been included in the AHCA proposal and has garnered bipartisan support. Regardless of what the entire healthcare reform package will look like, this repeal will absolutely be included. As Mark Leahey, president and CEO of the Medical Device Manufacturers Association mentioned in a statement, "Fully repealing the medical device tax, establishing a more transparent and predictable regulatory process, lowering corporate taxes and properly reimbursing medical technologies would create an environment that allows this proud American industry to thrive."

Where's The Best Value

So, where's some good value in the MedTech industry? I believe Owens & Minor, Inc. (NYSE:OMI) is at the top of the list. OMI supplies chain services to healthcare manufacturers and providers of healthcare products, which include disposable medical supplies, devices, and implants.

The Good

It's impressive to see OMI's forward P/E ratio of 12.61 compared to the industry average of 26. With $9.38 billion in revenue and an average analyst earnings estimate of 1.92 per share, investors are currently paying a discount for each dollar of earnings. And, we can't forget the dividend! Forward dividend yield is coming in at 3.61%, and the company hasn't made any indications that will change. Great dividend plays are also companies with great fundamentals, present and future. OMI's next quarter growth estimates are coming in at 7.7%, something to keep an eye on should the company make any revisions.

The Questionable

But the stock price has been beaten down: OMI's price is trading over 13 points lower than their most recent high in April 2016. Why? An earnings miss in May 2017 and a $5.5 million year-to-year loss in operating earnings from their proprietary products segment may be the keys. Admittedly, the company spent more on operating costs in the second quarter of 2017.

Bottom Line

In my opinion, it all comes back to regulation and repealing the medical device excise tax will be a jolt to this company and this industry. OMI is currently trading at a discount because it's been beaten down (some would argue, for good reason). The future prospects look bright with a Republican agenda squarely geared at healthcare reform and repealing the ACA, in some fashion. Important to note, technically speaking, the stock price has bounced off its most recent support level (at $27). OMI is a "Buy", and we should be seeing a 7-10% increase in stock price, in the short term, simply based on regulation expectations. That runs consistent with analyst's average price target ($30.81), but there's little reason why it can't run back up to previous highs in the lower 40s with future year-to-year growth and solid dividends.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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