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Why You Should Hold Mednax (MD) Stock in Your Portfolio

Zacks Equity Research

Mednax, Inc MD remains well-poised for growth, given its strong revenue momentum and strategic initiatives.

Its return on equity — a profitability measure — is 10.4%, better than the industry average of -236.1%. This reflects the company’s efficiency in utilizing shareholders’ funds.

The company has also retained investors' optimism by sustaining its beat streak in three of the last four reported quarters, the average positive surprise being 1.48%. This  highlights the company’s operational excellence.

Mednax has been witnessing constant revenue growth over the past few years, primarily driven by favorable operating performance, ramp-up of inorganic growth profile and strong segmental performances. This upside is evident from a CAGR of 13.94% during the 2008-2017 period. The winning momentum continued into the first three quarters of 2018 as well with the metric rising 6.6%.

Moreover, Mednax has been extremely active when it comes to boosting its portfolio via strategic initiatives. One of the company’s notable buyouts was that of vRad that helped the company expand its services in telemedicine. It seeks to purchase physician’s practices group and complementary service businesses. In the first three quarters of 2018, Mednax has closed the transactions of five physician group practices including two radiology practices, one neonatology practice and two pediatric subspecialty practices, which aided the company to drive its national network of physician practices. In Oct 2018, it also bought South Dade Neonatology, a private neonatology practice based in Miami as well as Radiology Specialists, LTD, a private radiology physician group based in Las Vegas. All these acquisitions poise the company well for growth.

However, escalating expenses have been hurting Mednax from the past many years. It should be noted that increasing expenses surpassed revenue growth in the past couple of years and the same continued into the first nine months of 2018 as well. Despite cost-curbing initiatives taken by the company,  high labor costs should keep exerting pressure on salaries and benefit component of total expenses. This might in turn, continue to weigh on the margins.

The Zacks Consensus Estimate for the company’s current-year earnings is pegged at $3.81, representing a year-over-year growth of 14.1% on revenues of $3.6 billion.

For 2019, the Zacks Consensus Estimate for earnings stands at $4.12 on $3.7 billion revenues, translating into a respective 8.2% and 3.1% improvement.

Shares of this Zacks Rank #3 (Hold) company have plunged 32% in a years’ time against its industry’s growth of 24.8%.


Stocks to Consider

Investors interested in the medical sector can take a look at some better-ranked stocks like UnitedHealth Group Incorporated UNH, Humana Inc. HUM and WellCare Health Plans, Inc. WCG, each carrying a Zacks Rank #2 (Buy).

UnitedHealth operates as a diversified health care company in the United States. In the last four reported quarters, the company delivered average preceding four-quarter beat of 3.39%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Humana operates as a health and well-being company in the United States. It came up with average last four-quarter earnings surprise of 4.73%.

WellCare Health offers managed care services for government-sponsored health care programs. The company managed to pull off average trailing four-quarter positive surprise of 27.24%.

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