On May 21, 2014, Zacks Investment Research downgraded Owens & Minor Inc. (OMI - Free Report) 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 Cardica Inc. , Eagle Pharmaceuticals Inc. (EGRX - Free Report) and Mead Johnson Nutrition Company . All these stocks retain a Zacks Rank #2 (Buy).