Maximus, Inc.

MMS Details

Maximus, Inc. (NYSE: MMS) is a business process services (BPS) company that focuses on the health and human services industries. Its business segments are 1) The US Services Segment provides a wide range of BPS to US state and local government programmes. 2) The US Government Services Segment develops and maintains BPS solutions for various US federal civilian activities, including system and software development. 3) The Outside the US Segment includes health and disability evaluations, programme management for employment support, and other job seeker-related services provided to governments and business customers.

Latest News:

• MMS to Host Investor Day: MMS has announced that on May 24, 2022, it had conducted an investor day that featured presentations from the President and CEO and Segment General Managers. They laid out the company's growth strategy for the following phase, including organic growth and profitability targets.

Q2 FY22 Results:

• Organic Increase in Revenue: Revenue grew 22.7% to USD 1.18 billion in Q2 FY22, compared to USD 959.3 million in Q2 FY21. The expected contributions from the U.S. Federal Services Segment acquisitions and the U.K. Restart Programme in the Outside the U.S. Segment drove the USD 218.0 million rise. 
  

(Source: Company Filings) 

• Bottom-Line Performance: In Q2 FY22, the company's operating income was USD 75.3 million, with an operating margin of 6.4% vs 11.8% in Q2 FY21. Delays in core projects returning to pre-pandemic levels. At the same time, the COVID-19 response work continues its expected drop, resulting in diluted profits per share of USD 0.80 in Q2 FY22, compared to USD 1.29 in the prior-year quarter.
• Cash Flow Activities during the Quarter and Free Cash Flows (FCF) Conversion: The cash and cash equivalents totalled USD 92.6 million as of March 31, 2022, with gross debt of USD 1.46 billion. Cash flows were solid, as expected in Q2 FY22. The company generated USD 114.8 million in cash from operations, with USD 98.2 million in free cash flow. The table below shows the Free Cash Flows Conversion for prior years and what is projected in FY22.

(Source: Company Filings)

 FY 2022 Guidance:

• Revenue and Earnings Guidance: Revenue estimates for FY22 remains unchanged, with revenue projected to range between USD 4.5 billion and USD 4.7 billion. While the Earnings Guidance for FY22 is given below.

(Source: Company Filings)

Key Risks:

• Competition Risk: Many businesses are global in scope and have more financial resources. MMS may not be able to compete for the few significant contracts available. It might face competition from smaller companies with established reputations and political ties. It is impossible to predict if it will be able to compete successfully against existing or future rivals.
  

Valuation Methodology: Price / Earnings Per Share-based Relative Valuation

(Source: Analysis by Kalkine Group)

Stock Recommendation:

With a 10-year profits CAGR of 16.7%, the company has maintained sustainable growth and margins and set greater financial objectives for the current year. The firm has a 90% recompete win rate and concentrates on increasing margins. It is well-positioned in the market as COVID-related delays will abate, as shown by robust bookings year-to-date.

Considering the stock's 20% drop in the last six months, organic revenue growth, contracts secured, the FY22 projection, improved margins, a solid free cash flow conversion rate, related risks, and present valuation, we recommend a "Buy" rating on the stock at the current market price of USD 63.30, as of June 08, 2022, at 09:03 AM PDT.

1 Year Technical Price Chart (as of June 08, 2022, at 09:03 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary Analysis

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

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