A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
We believe that MAXIMUS, Inc. (MMS - Free Report) , with Growth Score of A and a market cap of $4.9 billion, is a stock that investors should retain in their portfolio. Shares of the company have gained 18% year to date.
Factors that Bode Well
MAXIMUS’ business process management expertise and ability to deliver cost-effective, efficient and high-scale solutions position it as a lucrative partner to governments. The company maintains solid relationship with governments and long-term contracts provide it predictable recurring revenue streams. MAXIMUS continuously seeks long-term relationships with clients in both existing and adjacent markets. It is also focused on digital transformation and expansion of foothold in clinical services.
Increased longevity and more complex health needs have boosted the demand for government social benefit and safety-net programs. This should continue driving the need for the company’s services.
The 2018 acquisition of General Dynamics Information Technology's citizen engagement centers brought in additional cost-plus contracts, enhanced technology and added operational capabilities.
Hurdles on the Way
Low unemployment rates across geographies, especially in Australia and UK keeps MAXIMUS’ outside the United States segment under pressure. This is due to lower case load volumes on the company’s welfare-to-work contracts. Revenues from the segment declined 14.3% in fiscal 2019. The segment’s gross profit margin and operating income margin declined 130 basis points (bps) and 240 bps, respectively.
Zacks Rank and Stocks to Consider
MAXIMUS currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Business Services sector are Global Payments (GPN - Free Report) , Mastercard (MA - Free Report) and Cardtronics (CATM - Free Report) . While Global Payments and Cardtronics sport a Zacks Rank #1 (Strong Buy), Mastercard carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected EPS (three to five years) growth rate for Global Payments, Mastercard and Cardtronics is 17%, 16% and 4%, respectively.
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