Maximus (MMS) Up 3.3% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Maximus (MMS). Shares have added about 3.3% in that time frame, outperforming the S&P 500.

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

MAXIMUS Beats Q2 Earnings Estimates

MAXIMUS reported mixed second-quarter fiscal 2019 results, with earnings beating the Zacks Consensus Estimate but revenues lagging the same.

Earnings per share came in at $1.07 compared with 82 cents reported in the year-ago quarter. The bottom line beat the consensus mark by 15 cents and was benefited by strong performance of the U.S. Health and Human Services, and U.S. Federal Services Segments. Revenues of $736.5 million missed the consensus mark by $30 million but improved 20% year over year, mainly driven by the acquisition of citizen engagement centers in the U.S. Federal Services Segment.

Revenues by Segment

U.S. Health and Human Services segment revenues of $290.7 million decreased 5% year over year mainly due to the rebid or extension of certain larger contracts in the portfolio. U.S. Federal Services segment revenues of $289.7 million were up more than 100% from the year-ago quarter. The uptick was driven by the buyout of citizen engagement centers, revenues from which totaled $176 million. Outside U.S. segment revenues of $156 million decreased 18% year over year on a reported basis and 12% on a constant currency basis due to decreases in welfare-to-work contracts in the United Kingdom and Australia.

Salas and Pipeline

Year-to-date signed contract awards at Mar 31, 2019 totaled $1 billion and contracts pending (awarded but unsigned) totaled $725 million. The sales pipeline at Mar 31, 2019, was $21.9 billion. This included roughly $1.3 billion in proposals pending, $2.5 billion in proposals in preparation and $18.1 billion in opportunities tracking.

Operating Performance

Operation income of $81.8 million declined 14.7% year over year. Operating margin of 11.1% declined 50 basis points (bps).

Balance Sheet and Cash Flow

The company ended the quarter with cash and cash equivalents balance of $46.8 million compared with $54.7 million in the prior quarter. Long-term debt at the end of the quarter was $120.3 million. The company generated $67.9 million of cash from operating activities and capex was $8.6 million. Free cash flow at the end of the quarter was $59.3 million.

Share Repurchase and Dividend Payout

MAXIMUS repurchased shares for $5.1 million and paid dividends of $16 million during the reported quarter.

Outlook

MAXIMUS narrowed its fiscal 2019 earnings and revenue guidance. It now expects earnings per share in the range of $3.65 to $3.75, compared with the previous guidance of $3.55-$3.75. The company expects revenues between $2.925 billion and $2.950 billion, compared with the previous guidance of $2.925-$3.0 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Maximus has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Maximus has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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