Why Is Maximus (MMS) Down 12.8% Since Last Earnings Report?

A month has gone by since the last earnings report for Maximus (MMS). Shares have lost about 12.8% 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 Q1 Earnings Meet Estimates

MAXIMUS reported first-quarter fiscal 2020 earnings per share of 91 cents, which matched the Zacks Consensus Estimate and increased 5.8% year over year.

Revenues of $818.2 million beat the consensus mark by 1.7% and improved 23.1% year over year. The year-over-year uptick was driven by strength in the U.S. Federal Services Segment due to contribution from the acquired citizen engagement centers business, the ramp-up on the Census contract, and organic growth in the company’s U.S. Health & Human Services and U.S. Federal Services Segments.

Revenues by Segment

U.S. Health and Human Services segment revenues of $312.3 million increased 6.2% year over year mainly driven by new contracts and expansion of existing work. U.S. Federal Services segment revenues of $366.6 million were up 68.9% from the year-ago quarter. Outside the U.S. segment revenues of $139.4 million declined 9% year over year on a reported basis and 8% on a constant-currency basis.

Sales and Pipeline

Year to date signed contract awards at Dec 31, 2019 totaled $176.6 million and contracts pending (awarded but unsigned) totaled $439.5 million. The sales pipeline at Dec 31, 2019 was $30.6 billion. This included $3.7 billion in proposals pending, $0.7 billion in proposals in preparation and $26.3 billion in opportunities tracking.

Operating Performance

Operation income of $79.1 million increased 6.7% year over year. Operating margin of 9.7% declined 150 basis points (bps).

Balance Sheet and Cash Flow

The company ended the quarter with cash and cash equivalents balance of $149.5 million compared with $105.6 million in the prior quarter. The company generated $87.3 million of cash from operations and capital expenditure was $10.5 million. Free cash flow was $76.8 million. MAXIMUS paid out dividends of $18 million in the quarter.

Outlook

The company reiterated its fiscal 2020 guidance. Earnings per share are expected to be in the range of $3.95 to $4.15. The company expects revenues of $3.15-$3.3 billion. Cash flows from operations are expected to be between $300 million and $350 million, and free cash flow is anticipated between $275 million and $325 million. Estimated effective income tax rate is between 24.5% and 25.5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -10.82% due to these changes.

VGM Scores

At this time, Maximus has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Maximus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.