Linked here is a detailed quantitative analysis of Owens & Minor, Inc. (NYSE: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.), 2.) and 3.) above. The stock is trading at a 19.3% discount to its calculated fair value of $35.94. 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 $4,530. 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 3 years to equal a MMA yielding an estimated 20-year average rate of 3.4%. OMI earned a check for the Key Metric ‘Years to >MMA’ since its 3 years is less than the 5 year target.
Memberships and Peers: OMI is a member of the Broad Dividend Achievers™ Index. The company’s peer group includes: Cardinal Health, Inc. (NYSE:OMI) with a 2.2% yield, McKesson Corporation (NYSE:MCK) with a 1.1% yield and Patterson Companies Inc. (NASDAQ:PDCO) with a 1.4% yield.
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 $34.79 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 1.87%.
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 12.8%. This dividend growth rate is below 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. I will continue to add to my OMI position when it is trading below my fair value price of $35.94 and as my allocation allows. For additional information, including the stock’s dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in OMI (2.0% of my Income Portfolio). See a list of all my income holdings here.
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