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Why Is Maximus (MMS) Down 1.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Maximus (MMS - Free Report) . Shares have lost about 1.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Maximus due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

MAXIMUS Beats on Q3 Earnings Estimates

MAXIMUS reported mixed second-quarter fiscal 2020 results with earnings missing the Zacks Consensus Estimate and revenues beating the same.

Earnings per share amounted to 43 cents, which missed the Zacks Consensus Estimate by 43.4% and plunged 59.8% year over year. The downside was primarily caused by the impact of COVID-19 pandemic and timing of the changed order.

Revenues of $818.1 million beat the consensus mark by 9.6% and increased 11.1% year over year. The year-over-year uptick was driven by the Census contract in the United States and organic revenue growth in the company’s U.S. Health & Human Services and U.S. Federal Services Segments.

Revenues by Segment

U.S. Health and Human Services segment revenues of $308.7 million increased 6.2% (all organic) year over year, mainly on new contracts and expansion of existing work. U.S. Federal Services segment revenues of $393.4 million rallied 35.8% from the year-ago quarter’s reported figure. In this segment, organic revenue growth was 6.7%. Outside the U.S. segment revenues of $116 million declined 26% year over year on a reported basis and 24% on a constant-currency basis. Operating margin i this segment was 2.9%.

Sales and Pipeline

Year to date signed contract awards at Mar 31, 2020 totaled $729.8 million and contracts pending (awarded but unsigned) totaled $215.8 million. The sales pipeline at Mar 31, 2020 was $29.2 billion. This included $2.8 billion in proposals pending, $2 billion in proposals in preparation and $24.4 billion in opportunities tracking.

Operating Performance

Operating income of $37.3 million decreased 54.4% year over year. Operating margin of 4.6% declined 650 basis points (bps). Timing related change order and impact of the pandemic on performance-based work, ongoing investments in business development and technological capabilities have negatively impacted operating performance in the quarter.

Balance Sheet and Cash Flow

The company ended the quarter with cash and cash equivalents balance of $126.3 million compared with $149.5 million in the prior quarter. The company generated $22 million of cash from operations. Free cash flow amounted to $13.4 million. MAXIMUS paid out dividends of $17.9 million and repurchased approximately 2.74 million shares for $165.1 million.

Trimmed Outlook

The company lowered its fiscal 2020 guidance. Earnings per share are now expected in the range of $2.95-$3.15 compared with the previously expectation of $3.95 to $4.15. The company expects revenues of $3.15-$3.25 billion compared with the previous expectation of $3.15-$3.3 billion. Cash flows from operations are expected between $250 million and $300 million compared with the previous expectation of $300 million and $350 million. Free cash flow is anticipated between $200 million and $250 million compared with the previous projection of $275 million and $325 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Maximus has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Maximus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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