MAXIMUS: Government Efficiency
07/01/2016 8:00 am EST
For more than 40 years, this firm has operated under its founding mission of Helping Government Serve the People; it helps government agencies run efficient cost-effective programs, explains Ingrid Hendershot, money manager and editor of Hendershot Investments.
MAXIMUS (MMS) is a leading operator of health insurance exchange customer contact centers.
In addition, it is a provider of state Medicaid and Children's Health Insurance Program services; it is also the largest US and UK provider of government-sponsored health benefit appeals and assessments.
The company is one of the largest providers of occupational health services in the UK and an established provider of welfare-to-work.
Most of the company's revenue is derived from long-term contractual arrangements with governments, which provides management with good visibility in terms of predicting revenues.
Over the past five years, the company has generated strong double-digit growth. Revenues have compounded at a 23% annual rate with EPS growing at a 20% annual rate thanks to demographic, economic and legislative trends.
Aging populations have placed a greater strain on health care and welfare systems. Governments need to manage budgets in the face of increasing demands for social services.
Legislative initiatives such as the Affordable Care Act and welfare reform efforts in the UK require the implementation of new services and programs.
With a proven track record and expertise, MAXIMUS is in a strong position to provide those services and deliver valuable solutions to governments.
Return on shareholders' equity averaged 22.5% over the last five years. The company deploys capital in a prudent manner, paying a modest dividend while making opportunistic share repurchases, which have totaled nearly $300 million over the past five years.
Management expects revenues in fiscal 2016 to range between $2.4-$2.5 billion which should generate EPS in the range of $2.50-$2.70.
The company expects strong cash flow generation in fiscal 2016 with cash flow from operations in the range of $200-$230 million and free cash flow in the range of $130-$160 million.
A high-quality company with predictable revenues, double-digit growth and strong cash flows, we rate MMS a buy.
By Ingrid Hendershot, Editor of Hendershot Investments