Why Should You Retain MEDNAX (MD) in Your Portfolio Now?

MEDNAX, Inc.  MD is poised well for growth on the back of its strategic initiatives and cost-curbing methods.

The company is better-placed for progress, evident from its favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

The company managed to deliver a decent surprise history as its earnings beat estimates in three of the trailing four quarters (while missing the mark in one), the average surprise being 22.6%.

Here we discuss the reasons for retaining this currently Zacks Rank #3 (Hold) company in your investment portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MEDNAX has an impressive inorganic growth profile. In 2019, the company closed its buyouts of nine physician group practice acquisitions including two neonatology physician practices, two maternal-fetal physician practices, one radiology practice and four other pediatric subspecialty practices. We believe that these moves bode well for the  long haul.

In response to the COVID-19 pandemic, MEDNAX took several initiatives to control costs, such as temporary salary reductions, furloughing employees, etc.

In 2019, the company divested its MedData business to Frazier Healthcare Partners, which will help it focus on its core business. This divestment is expected to strengthen MEDNAX’s position, both financially and strategically. Moreover, the company sold American Anesthesiology, which is expected to mitigate cash losses induced by the coronavirus outbreak as well as improve its risk profile.

MEDNAX also declared that it will sell its MEDNAX Radiology Solutions to Radiology Partners for $885 million. The company has been looking to dispose its MEDNAX Radiology Solutions for deepening its focus on the core pediatrics and obstetrics business lines. The division has also been faring poorly ever since the COVID-19 outbreak. Therefore, the sale proceeds are expected to reinforce the company’s balance sheet position.

MEDNAX will eventually change its name to Pediatrix Medical Group, Inc. to solely concentrate on pediatric care. We believe that these restructuring initiatives will improve its solvency level and help it streamline its business for better operational efficiency.

The company has been experiencing consistent revenue growth over the past several years on the back of operational excellence, a strong inorganic growth profile and solid segmental performances. This is evident from its CAGR of 6% during the 2015-2019 period. Although in the first six months of 2020, the metric slid marginally due to the COVID-19 effect, we expect the same to bounce back on strategic initiatives.

However, MEDNAX withdrew its initial guidance for the full year due to the coronavirus impact on global economy. In March, the company’s clinical operations were affected by lower patient volumes due to the then evolving COVID-19 outbreak.

The company’s long-term growth rate stands at 10%, higher than the industry's average of 7.7%.

Price Performance

Shares of this company have surged 88.1% in six months' time, outperforming its industry’s increase of 69.7%.

Notably, other companies in the same space, such as HCA Healthcare, Inc. HCA, Acadia Healthcare Company, Inc. ACHC and Universal Health Services, Inc. UHS have gained 68%, 150% and 64.2%, respectively.

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With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.

The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.

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