On May 21, 2014, Zacks Investment Research downgraded
Owens & Minor Inc.
) by a notch to a Zacks Rank #4 (Sell).
Why the Downgrade?
This Virginia-based healthcare logistics company has been
witnessing a negative trend in earnings estimate revision over the
past one month. For 2014, three estimates moved down in the past 30
days, with no upward revision, sinking the Zacks Consensus Estimate
by 1.0% to $1.98 per share.
Owens & Minor clocked negative earnings surprises in 2 of the
last 4 quarters, with an average miss of 2.2%.
On Apr 28, 2014, Owens & Minor reported its 2014-first-quarter
results, with both the top and the bottom lines coming in below
expectations. Following the earnings release, shares of the company
dropped 6.0% till the last closing date.
Adjusted earnings per share remained flat at 44 cents year over
year and fell shy of the Zacks Consensus Estimate of 46 cents.
Revenues in the quarter inched up 0.4% to $2,256.4 million but
lagged the Zacks Consensus Estimate of $2,285 million.
The company's Domestic segment revenues and operating earnings
continue to be affected by lower revenues from small healthcare
provider customers, reduced benefits from supplier price changes
and low margins on new and renewed customer contracts.
Reduced activity level of certain existing customers in the U.K.
led to operating losses at the International segment of Owens &
Minor. The segment also witnessed higher than anticipated expenses
related to the addition of an important customer.
Furthermore, Owens & Minor reported a significant decline in
cash flow from operations led by lower operating earnings and
changes in working capital requirements at the end of the quarter.
Nevertheless, Owens & Minor maintained its 2014 financial
guidance. The company expects adjusted earnings per share in the
band of $1.95−$2.05. The current Zacks Consensus Estimate of $1.98
lies within the guidance range. Total net revenue growth for the
year is expected at 2%.
In addition to the ongoing market trends including lower overall
healthcare utilization, Owens & Minor continues to be
internally affected by transition-related costs, higher expenses
due to increased fee-for-service business activities and weak
activity with international customers. Moreover, the long-term
expected earnings growth for this stock is pegged lower at 9.0%
compared with industry growth of 14.9%.
Other Stocks to Consider
Some better-ranked medical product stocks include
Eagle Pharmaceuticals Inc.
Mead Johnson Nutrition Company
). All these stocks retain a Zacks Rank #2 (Buy).
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