Henry Schein, Inc. (NASDAQ:HSIC) shares are down more than -3.56% this year and recently decreased -6.64% or -$4.79 to settle at $67.39. Owens & Minor, Inc. (NYSE:OMI), on the other hand, is down -20.87% year to date as of 02/13/2018. It currently trades at $14.94 and has returned -8.90% during the past week.
Henry Schein, Inc. (NASDAQ:HSIC) and Owens & Minor, Inc. (NYSE:OMI) are the two most active stocks in the Medical Equipment Wholesale industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect HSIC to grow earnings at a 8.03% annual rate over the next 5 years. Comparatively, OMI is expected to grow at a 2.15% annual rate. All else equal, HSIC’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 2.17% for Owens & Minor, Inc. (OMI). HSIC’s ROI is 13.80% while OMI has a ROI of 8.90%. The interpretation is that HSIC’s business generates a higher return on investment than OMI’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. HSIC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.71. Comparatively, OMI’s free cash flow per share was +1.07. On a percent-of-sales basis, HSIC’s free cash flow was 0.96% while OMI converted 0.67% of its revenues into cash flow. This means that, for a given level of sales, HSIC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. HSIC has a current ratio of 1.60 compared to 1.80 for OMI. This means that OMI can more easily cover its most immediate liabilities over the next twelve months. HSIC’s debt-to-equity ratio is 0.52 versus a D/E of 0.91 for OMI. OMI is therefore the more solvent of the two companies, and has lower financial risk.
HSIC trades at a forward P/E of 16.91, a P/B of 3.51, and a P/S of 0.85, compared to a forward P/E of 7.39, a P/B of 0.89, and a P/S of 0.10 for OMI. HSIC is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. HSIC is currently priced at a -17.31% to its one-year price target of 81.50. Comparatively, OMI is -18.49% relative to its price target of 18.33. This suggests that OMI is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.30 for HSIC and 3.50 for OMI, which implies that analysts are more bullish on the outlook for OMI.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. HSIC has a beta of 0.96 and OMI’s beta is 1.20. HSIC’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. HSIC has a short ratio of 6.79 compared to a short interest of 7.01 for OMI. This implies that the market is currently less bearish on the outlook for HSIC.
Henry Schein, Inc. (NASDAQ:HSIC) beats Owens & Minor, Inc. (NYSE:OMI) on a total of 8 of the 14 factors compared between the two stocks. HSIC is growing fastly, is more profitable, generates a higher return on investment, has a higher cash conversion rate and has lower financial risk. Finally, HSIC has better sentiment signals based on short interest.