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MAXIMUS (MMS) Benefits From Three-Pronged Strategy, Buyouts

Zacks Equity Research

Over the past year, shares of MAXIMUS, Inc. MMS have gained 13.4% compared with 30.9% rise of the industry it belongs to and 4% rise of the Zacks S&P 500 composite.

Recently, 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. Revenues of $736.5 million missed the consensus mark by $30 million but improved 20% year over year.

MAXIMUS has an impressive earnings surprise history, having outpaced estimates in three of the trailing four quarters. It delivered average four-quarter beat of 9%. The consensus estimate for third-quarter fiscal 2019 earnings has moved up by a penny in the past 60 days.

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What’s Driving MAXIMUS?

MAXIMUS is progressing well with its digital transformation strategies. The company is developing new solution sets aimed at achieving additional operational and cost efficiencies through techniques such as cloud migration services, artificial intelligence, robotic process automation (RPA), digital automation (such as next-generation interactive voice recognition and process automation)and machine learning. It is implementing new digital innovations within both business process management and as direct service offerings to enhance the portfolio of citizen services and federal capabilities. It is actively involved with many state clients to discover how digital initiatives can improve user experience for programs like Medicaid. Acquisition of Revitalised has also improved MAXIMUS’ digital capabilities. Such digital initiatives are helping MAXIMUS broaden its BPO business and strengthen its market position by better serving its clients.

The company is also focused on expanding its clinical related services. It has started servicing a new federal agency with subcontracted clinical assessments and undertaken some new program work as a subcontractor, performing medical record indexing and provider outreach and engagement services. Its automated portal for certain clinical related services streamlines the independent medical review experience for citizens and doctors. It is also investing in a clinical platform in the United Kingdom. MAXIMUS’ efforts to strengthen its clinical-related services in the federal marketplace ensure long-term sustainable growth.

Acquisitions act as a key growth catalyst for MAXIMUS, boosting the company’s long-term organic growth as well as its top-line growth. In 2018, MAXIMUS acquired General Dynamics Information Technology's citizen engagement centers to strengthen its U.S. federal services. The acquisition brought in additional cost-plus contracts (which include extended work with the Centers for Medicare and Medicaid Services and the United States Census Bureau), enhanced technology and added operational capabilities and contributed roughly $176 million revenues in second-quarter fiscal 2019. The company further expects $600-$625 million revenue contribution from this buyout in fiscal 2019.

Zacks Rank & Other Stocks to Consider

MAXIMUS currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the broader Zacks Business Services sector are WEX WEX, Navigant Consulting NCI and FLEETCOR Technologies FLT. While WEX and Navigant Consulting sport a Zacks Rank #1, FLEETCOR carries a Zacks Rank #2.

Long-term expected EPS (three to five years) growth rate for WEX, Navigant Consulting and FLEETCOR is 15%, 13.5% and 16.5%, respectively.

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