Citi has updated its stance on Owens & Minor (NYSE: OMI), increasing the price target from $19.00 to $21.00 while maintaining a Buy rating on the stock. The adjustment, which came on Wednesday, follows the recent announcement by Owens & Minor that they will acquire Rotech Healthcare, a home medical equipment provider, for $1.36 billion in cash.
This acquisition is a significant move for Owens & Minor, with the deal valued at 6.3 times the last twelve months EBITDA.
"Yesterday (Tuesday), OMI announced they are acquiring Rotech Healthcare (LINK), a provider of home medical equipment, for $1.36B in cash (6.3x LTM EBITDA). We think this transaction makes strategic sense and is in line with the company's Patient Direct (PD) strategy outlined during its Investor Day," said Citi's analyst.
The transaction is viewed as a strategic fit for Owens & Minor, aligning with the company's Patient Direct (PD) strategy, which was detailed during its investor day.
The acquisition will notably expand the company's Sleep/Respiratory business to approximately 50% of its post-transaction operations, up from 43%. However, it also changes the composition of the company's commercial payer mix, reducing it to 68% post-transaction from the previous 80%.
Citi's analyst noted the acquisition's potential to bring significant scale to Owens & Minor's PD business. The scale is anticipated to improve service levels across the board for patients, providers, and payors.
Financially, the deal is also seen as beneficial, and expected to improve Owens & Minor's margin and cash flow profile. The improvement will support the company's goal to reduce its leverage to three times within two years after the transaction closes.
Additionally, the acquisition is projected to be accretive to Owens & Minor's earnings per share (EPS), with an estimated increase of $0.15 in the second year following the completion of the deal. This forecasted growth in EPS is a key factor in the positive outlook and the raised price target for Owens & Minor's shares.
Meanwhile, Owens & Minor has unveiled plans to acquire Rotech Healthcare Holdings in a cash transaction valued at $1.36 billion to bolster the company's position in the home-based care market and expand its patient direct business.
The deal is expected to close by the end of 2024, subject to customary closing conditions and approvals. The acquisition is projected to generate significant shareholder value, with estimated synergies of approximately $50 million by the third year post-acquisition.
Owens & Minor has also reaffirmed its full-year guidance for 2024, excluding contributions from Rotech. These recent developments align with the company's growth strategy and market expansion goals.
InvestingPro Insights
Following Citi's optimistic update on Owens & Minor (NYSE:OMI), InvestingPro data provides a deeper dive into the company's financial health and market performance. Owens & Minor's market capitalization stands at $1.26 billion, and despite a negative P/E ratio over the last twelve months, the adjusted P/E ratio for the first quarter of 2024 reflects a more favorable value of 9.62. This suggests that investors are expecting a turnaround in profitability, aligning with the analyst consensus that Owens & Minor's net income is expected to grow this year.
InvestingPro Tips highlight the company's significant return over the last week, with a price total return of 11.28%, indicating a strong performance in the short term. Additionally, the company is trading at a low revenue valuation multiple, which could signal an attractive entry point for investors considering the company's strategic expansion through acquisitions like Rotech Healthcare.
For those seeking to delve further into Owens & Minor's investment potential, InvestingPro offers additional insights, including the company's strong free cash flow yield and its position as a prominent player in the Healthcare Providers & Services industry. Subscribers can access a total of 10 InvestingPro Tips to inform their investment decisions. Interested readers can take advantage of a special offer using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, providing them with comprehensive analysis and data to guide their investment strategies.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.