YB new stock pitches (Tue, Aug 19)

Owens & Minor (OMI) is divesting its low-margin hospital supply business to focus entirely on its Patient Direct segment, which serves nearly 3 million patients with chronic care supplies and boasts a 9.7% operating margin versus the company-wide 2%. Despite reporting a Q2 net loss of $869 million, the underlying business generated strong free cash flow of approximately $70 million after adjusting for one-off costs related to the terminated Rotech acquisition, with the stock currently trading at less than 2x annualized FCF following a 90% drawdown from 2021 highs. Post-divestiture, Owens & Minor will reduce its debt from $1.9 billion to between $752 million and $1.14 billion, retain 85% of its 2024 operating profit despite losing 75% of revenue, and benefit from industry tailwinds including the growing population of chronically ill and elderly patients requiring home care. Management projects 4% annual revenue growth and operating margins expanding to 9.5% by 2027, resulting in a price target of $29.67 (5.3x upside). Key risks include managing stranded costs (currently $11 million in Q2), potential acquisition missteps similar to the failed Rotech deal that cost $100 million in fees, meaningful delays in completing the divestiture that could impact $383 million of debt maturing in 2025, lower-than-expected sale proceeds, and management execution challenges.

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Vivid Seats (SEAT), a ticket reseller with a $177 million market cap, presents an attractive investment opportunity ahead of an anticipated Taylor Swift tour announcement. The company explicitly stated in its Q2 2023 earnings call that results were 'more first half weighted than normal due to significant contribution in the first half from Taylor Swift.' Management described 2023 as having 'a record setting concert environment' with fans 'paying $10,000 to see the Eras Tour.' The 'Swift effect' has been proven: after Swift appeared at a Chiefs game in 2023, Vivid Seats reported traffic to the Chiefs-Jets game page up 173%, Chiefs team page up 126%, and average prices up 14%. In contrast, concert revenues fell 8% for Vivid Seats in 2024 as Swift 'won't be touring in 2025 for the first time in two years.' The market appears unaware of the upcoming tour announcement's potential impact, and by the time it's confirmed, the stock will likely have already reacted, suggesting good risk/reward as Swift is unlikely to 'leave billions on the table and not touring.'

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Dataproces Group (DATA.CO) is a Danish GovTech micro-cap offering consultancy and SaaS solutions to municipalities, with penetration in 90 of 98 Danish municipalities. The company has nearly doubled ARR in the last two years, achieved 30% cash EBITDA margins, and over 100% cash conversion. Trading at 12x forward EV/EBITDA, the stock offers approximately 80% upside potential, driven by 4-5x upsell opportunities within existing clients and untapped pricing power. Key catalysts include expansion into Germany and Sweden (already started with the Boelplan acquisition providing access to 6 German municipalities), and new product launches (KØS budgeting module and Kommuneprofilen). The primary risk is competition from KOMBIT, a non-profit municipally owned IT community, which is rolling out a competing solution to Dataproces' MARC Fleksløn module (representing 19% of ARR) in Q4-2025/Q1-2026, potentially causing significant churn. Other risks include cybersecurity threats, execution challenges in new markets, regulatory changes, and talent retention issues.

Read the full article here. Read time: 8 min