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Why Owens & Minor Stock Just Gave Back 11.4%

By Rich Smith – Jul 22, 2020 at 3:57PM

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What went up (a lot) just came back down (a little).

What happened

Owens & Minor (OMI 1.51%) investors had a fantastic day Tuesday. After the maker of personal protective equipment (PPE -- such as surgical gloves, gowns, and -- most especially these days -- masks) preannounced preliminary financial results for the fiscal second quarter and upped its guidance for the full year, Owens & Minor stock raced ahead to close the day up 81%.

This afternoon, Owens & Minor is giving back some of those gains -- just a bit -- with its stock down 11.4% as of 3:20 p.m. EDT.

Doctor in mask, gloves, and scrubs

Image source: Getty Images.

So what

That's kind of a shame, given that today's news for Owens & Minor is actually pretty good. Bank of America just upgraded the shares to "buy" with a $12 price target, and R.W. Baird raised the stock to "outperform" with a $14 price target. Baird was impressed by the "pop" in PPE demand, notes, and BofA says Owens & Minor should enjoy a "sustained" benefit to its business from PPE sales as the coronavirus crisis drags out.

Nevertheless, when you consider how very far the stock moved yesterday, and how fast, the potential for a bit of profit-taking and giving back of gains today was hardly unanticipated -- and giving back 11% after an 81% gain still leaves O&M shareholders with a tidy profit on their hands.

Now what

Now the question is whether Owens & Minor stock can hang onto the remainder of its gains.

According to its latest guidance, O&M is now on track to earn anywhere from $1 to $1.20 per share in "adjusted" net income this year -- roughly twice what it was looking for three months ago. At a share price of just under $13 today, that makes for a price-to-earnings valuation of no more than 13 for the stock, and potentially as cheap as a P/E of 10.8 if the company maxes out its earnings projection.

Owens & Minor stock may be down a bit today, but I expect it will be heading back up in relatively short order.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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