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Mednax, Inc. (MD - Free Report) is a healthcare services company that focuses on physician services for newborn, maternal-fetal, pediatric subspecialty and anesthesia care. The company has been growing both organically as well as inorganically. The acquisition of physician practice groups, complementary service businesses and expanding geographic coverage has accrued to the company’s top line.
Nevertheless, over the past one year, Mednax with a Zacks Rank # 4 (Sell) has lost 21.6%, faring miserably against 8.5% loss sustained by the Zacks categorized Medical Hospital industry.
Let’s take a look at the factors that make the stock look unattractive at this point.
Earnings miss and downward revision in estimates – The company disappointed investors with an earnings miss in the last reported quarter. Its earnings of 70 cents missed the estimates by 14%. Also, earnings missed in three of the last four reported quarters with an average negative surprise of 4.91%. Following lackluster first-quarter earnings, the company has witnessed a downward revision in earnings estimate by 16% to $3.37 per share for 2017 over the past 60 days. The same for 2018 has also gone down by 14.5% to $3.78 per share.
Lackluster earnings guidance – The company expects earnings per share for the three months ending Jun 30, 2017 to be in the range of 68 cents to 72 cents, down from 89 cents reported in the year-ago quarter. Adjusted EPS will likely be in the range of 85 cents to 89 cents, down from $1.03 per share reported in the year-ago quarter. The range for its second-quarter guidance assumes anticipated same-unit revenue of negative 2% to flat year over year. For the second quarter of 2017, the company expect that EBITDA to decline by 8% to 12% year over year.
Fundamental headwinds – Recently, the company’s results have suffered due to huge investments made in diversification. The investments might create volatility in its quarter-over-quarter performance, before reaping long-term growth.
The company is also suffering from a subdued pace of birth across the country, which has slowed growth of one of its core businesses, neonatology, which has in turn stressed revenue growth.
Mednax is seen a dent in its bottom line led by a spike in its interest expense by almost 160% in 2014 as well as in 2015 and again by 173% in 2016. The same continued in the first quarter of 2017 which saw interest expense rise 22%. This has led to a faster increase in expenses than revenue growth. It is to be noted that the company’s operating expenses have increased more than revenue growth since 2011. While revenues have witnessed a CAGR of 15.02% from 2011–2015, operating expenses have risen at a rate of 15.87% over the same time frame.
Valuation Looks Stretched
The company has a trailing 12-month PE ratio of 15. This level compares unfavorably with the industry’s PE (TTM) of 14.7.
Also, its PEG ratio of 1.40 is higher than 1.37 for the industry The stock’s valuation looks a bit expensive when compared with the industry.
Anthem surpassed earnings estimates in three of the trailing four quarters with an average positive surprise of 8.36%.
UnitedHealth delivered positive earnings surprises in each the last four quarters with an average beat of 4%.
Humana beat earnings estimates in each of the last four quarters with an average positive surprise of 3.75%.
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By last year, it was already generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for those who make the right trades early. See Zacks' Top 3 Stocks to Ride This Space >>
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4 Reasons to Stay Away from Mednax (MD) Now
Mednax, Inc. (MD - Free Report) is a healthcare services company that focuses on physician services for newborn, maternal-fetal, pediatric subspecialty and anesthesia care. The company has been growing both organically as well as inorganically. The acquisition of physician practice groups, complementary service businesses and expanding geographic coverage has accrued to the company’s top line.
Nevertheless, over the past one year, Mednax with a Zacks Rank # 4 (Sell) has lost 21.6%, faring miserably against 8.5% loss sustained by the Zacks categorized Medical Hospital industry.
Let’s take a look at the factors that make the stock look unattractive at this point.
Earnings miss and downward revision in estimates – The company disappointed investors with an earnings miss in the last reported quarter. Its earnings of 70 cents missed the estimates by 14%. Also, earnings missed in three of the last four reported quarters with an average negative surprise of 4.91%. Following lackluster first-quarter earnings, the company has witnessed a downward revision in earnings estimate by 16% to $3.37 per share for 2017 over the past 60 days. The same for 2018 has also gone down by 14.5% to $3.78 per share.
Lackluster earnings guidance – The company expects earnings per share for the three months ending Jun 30, 2017 to be in the range of 68 cents to 72 cents, down from 89 cents reported in the year-ago quarter. Adjusted EPS will likely be in the range of 85 cents to 89 cents, down from $1.03 per share reported in the year-ago quarter. The range for its second-quarter guidance assumes anticipated same-unit revenue of negative 2% to flat year over year. For the second quarter of 2017, the company expect that EBITDA to decline by 8% to 12% year over year.
Fundamental headwinds – Recently, the company’s results have suffered due to huge investments made in diversification. The investments might create volatility in its quarter-over-quarter performance, before reaping long-term growth.
The company is also suffering from a subdued pace of birth across the country, which has slowed growth of one of its core businesses, neonatology, which has in turn stressed revenue growth.
Mednax is seen a dent in its bottom line led by a spike in its interest expense by almost 160% in 2014 as well as in 2015 and again by 173% in 2016. The same continued in the first quarter of 2017 which saw interest expense rise 22%. This has led to a faster increase in expenses than revenue growth. It is to be noted that the company’s operating expenses have increased more than revenue growth since 2011. While revenues have witnessed a CAGR of 15.02% from 2011–2015, operating expenses have risen at a rate of 15.87% over the same time frame.
Valuation Looks Stretched
The company has a trailing 12-month PE ratio of 15. This level compares unfavorably with the industry’s PE (TTM) of 14.7.
Also, its PEG ratio of 1.40 is higher than 1.37 for the industry The stock’s valuation looks a bit expensive when compared with the industry.
Stocks to Consider
Some better-ranked stocks from the medical sector include Humana Inc. (HUM - Free Report) , Anthem Inc. and UnitedHealth Inc. (UNH - Free Report) . Each of these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Anthem surpassed earnings estimates in three of the trailing four quarters with an average positive surprise of 8.36%.
UnitedHealth delivered positive earnings surprises in each the last four quarters with an average beat of 4%.
Humana beat earnings estimates in each of the last four quarters with an average positive surprise of 3.75%.
3 Stocks to Ride a 588% Revenue Explosion
At Zacks, we're mostly focused on short-term profit cycles, but the hottest of all technology mega-trends is starting to take hold...
By last year, it was already generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for those who make the right trades early. See Zacks' Top 3 Stocks to Ride This Space >>