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MAXIMUS (MMS) Beats on Q3 Earnings, Narrows 2019 Guidance

Zacks Equity Research

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

The stock has declined 3.8% since the earnings release as guidance for fiscal 2019 was disappointing. Management guided revenues in the range of $2.88 to $2.90 billion, which is below the current Zacks Consensus Estimate of $2.91 billion and the previous guidance of $2.92-$2.95 billion.

The stock gained 17.6% year to date, significantly underperforming the 41.6% rally of the industry it belongs to.

Earnings per share came in at 97 cents compared with 91 cents reported in the year-ago quarter. The bottom line beat the consensus mark by 4 cents and was benefited by strong performance of the U.S. Health and Human Services, and U.S. Federal Services Segments.

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Revenues of $730.7 million missed the consensus mark by $26 million but improved 22.2% year over year, mainly driven by the acquisition of citizen engagement centers in the U.S. Federal Services Segment.

At the call, management stated that the company continues to execute on its three-pronged strategy of digital transformation, clinical evolution and market expansion.

Revenues by Segment

U.S. Health and Human Services segment revenues of $291.1 million declined 7.4% year over year mainly due to the rebid or extension of certain larger contracts in the portfolio.

U.S. Federal Services segment revenues of $292.3 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 $163.4 million.

Outside U.S. segment revenues of $147.3 million declined 13.9% year over year on a reported basis and 8.6% on a constant-currency basis due to decrease in welfare-to-work contracts in the United Kingdom and Australia.

Maximus, Inc. Revenue (TTM)

Maximus, Inc. Revenue (TTM)
Maximus, Inc. Revenue (TTM)

Maximus, Inc. revenue-ttm | Maximus, Inc. Quote

Sales and Pipeline

Year-to-date signed contract awards at Jun 30, 2019 totaled $1.8 billion and contracts pending (awarded but unsigned) totaled $0.7 billion. The sales pipeline at Jun 30, 2019, was $29.6 billion. This included roughly $1.8 billion in proposals pending, $1.9 billion in proposals in preparation and $25.9 billion in opportunities tracking.

Operating Performance

Operation income of $83.6 million increased 1.2% year over year. Operating margin of 11.4% declined 240 basis points (bps).

Balance Sheet and Cash Flow

The company ended the quarter with cash and cash equivalents balance of $71.1 million compared with $46.8 million in the prior quarter. Long-term debt at the end of the quarter was $268 million. It generated $136.5 million of cash from operating activities and CapEx was $20.5 million. Free cash flow at the end of the quarter was $116 million. MAXIMUS paid out dividends of $16 million in the quarter.

Outlook

MAXIMUS narrowed its fiscal 2019 earnings guidance. It now expects earnings per share in the range of $3.70 to $3.75, compared with the previous guidance of $3.65-$3.75. The Zacks Consensus Estimate is pegged at $3.72.

Zacks Rank & Stocks to Consider

Maximus currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some top-ranked stocks in the broader Zacks Business Services sector include ICF International ICFI, Accenture ACN and Charles River Associates CRAI, each carrying a Zacks Rank #2 (Buy).

The long-term expected EPS (three to five years) growth rate for ICF, Accenture and Charles River is 10%, 10.3% and 13%, respectively.

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