Why Is Maximus (MMS) Down 2.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Maximus (MMS). Shares have lost about 2.1% 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 the most recent earnings report in order to get a better handle on the important drivers.

MAXIMUS Beats Q3 Earnings Estimates

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

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.

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.

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.

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 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 company guided revenues in the range of $2.88 to $2.90 billion, which is below previous guidance of $2.92-$2.95 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 bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 #3 (Hold). We expect an in-line return from the stock in the next few months.

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