Mednax Stock Down 35% Year To Date: Will It Fall Further?
Zacks Investment Research | Sep 19, 2017 03:10AM ET
Mednax, Inc. (NYSE:MD) has been plagued by a number of headwinds, of late, leading investors to lose optimism on the stock. Also, this tepid scenario doesn’t seem to reverse anytime soon.
Meanwhile, a subdued pace of birth in neonatology and a change in payor mix in anesthesiology have kept the top line under pressure in both of the company’s businesses. Additionally, growth in compensation expense for nurse anesthetists and spike in interest expenses have pressurized margins.
These factors led to an earnings miss in the last quarter. Also, earnings missed in each of the last four quarters with an average negative surprise of 5.9%.
The Zacks Consensus Estimate for 2017 and 2018 earnings were also revised 7.6% and 11.5% downward, respectively, over the last 60 days.
Furthermore, Mednax’s headwinds have taken a toll on its share price that declined 35% year to date, underperforming 2.7% growth registered by the industry it belongs to.
Let’s take a look at other factors that have affected the price of the stock carrying a Zacks Rank #5 (Strong Sell).
Disappointing Earnings – The stock has been hurt by its disappointing performance in the first half of 2017. Mednax witnessed a 10.5%, 15.8% and 0.8% year-over-year declines in EBIDTA, adjusted EPS and cash flow from operations, respectively.
Fundamental headwinds – The company is suffering from a subdued pace of birth across the country, which has slowed growth of one of its core businesses — neonatology — which has in turn stressed revenue growth. Moreover, a change in payor mix in its anesthesiology business has pressurized its commercial volumes. This segment also suffers from growth in compensation expense for nurse anesthetists.
Additionally, Mednax’s results have suffered due to huge investments made in diversification. These investments might create volatility in its quarter-over-quarter performance, before reaping long-term growth.
Markedly, increase in expenses as a proportion of revenues owing to growth in compensation expense for supporting acquisition-related growth further pressurized the margins. Also, growth at existing units including compensation for non-physician clinicians increased at a faster pace than in the previous periods.
In fact, the company has been witnessing a dent in its bottom line led by a spike in its interest expenses for more than three years. It is also suffering from an increase in overall expenses, which has outpaced revenue growth compared with the last many years.
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Lackluster Earnings Guidance – Mednax expects earnings per share for the three months (ending Sep 30, 2017) to be in the range of 66 cents to 71 cents, down from $1.04 per share in the year-ago quarter. Adjusted EPS will likely be in the range of 83 cents to 88 cents, down from $1.09 per share in third quarter of 2016.
The range for its third-quarter guidance assumes anticipated same-unit revenue of negative 2% to flat year over year. For the third quarter of 2017, the company expects EBITDA to decline by 17% to 21% year over year, as against growth of 7.7% in last-year period.
Going Forward
Per management, the challenges in its business are expected to continue in the near term. We thus expect shares of the company to remain under pressure in the coming quarters.
Stocks to Consider
Some better-ranked stocks from the medical sector include Aetna Inc. (NYSE:AET) , Centene Corp. (NYSE:CNC) and WellCare Health Plans, Inc. (NYSE:WCG) , each holding a Zacks Rank #2 (Buy). You can see .
Aetna surpassed earnings estimates in each of the trailing four quarters, with an average positive surprise of 19%.
Centene delivered positive earnings surprises in three of the last four quarters, with an average beat of 7.7%.
WellCare Health Humana (NYSE:HUM) topped earnings estimates in each of the last four quarters, with an average positive surprise of 47.4%.
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