Mednax, Inc. MD is a healthcare services company that focuses on physician services for newborn, maternal-fetal, pediatric subspecialty and anesthesia care. The company has been displaying both organic and inorganic growth. The acquisition of physician practice groups, and complementary service businesses as well as expansion of geographic coverage has bolstered the company’s top line.

Nevertheless, over the past six months, this Zacks Rank #4 (Sell) company’s shares have gained 4.9%, underperforming the 9.8% increase logged by the Zacks categorized Medical - Hospital industry.

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Let’s take a look at the factors that make the stock unattractive at this point.

Earnings Miss and Downward Estimate Revisions

The company disappointed investors with the earnings miss in fourth-quarter 2016. Earnings of 95 cents per share missed estimates by 5%. Notably, the company’s earnings lagged estimates in two of the last four quarters with an average negative surprise of 1.52%. Following the fourth-quarter earnings announcement, the company has witnessed the Zacks Consensus Estimate for 2017 moving south by 4.1% to $4.01 per share over the past 60 days. The estimates for 2018 have also gone down by 5% to $4.40 per share.

Fundamental Headwinds

The year 2016 was challenging for the company as it invested in new businesses for diversification. The investments made by the company might affect its quarter-over-quarter performance, before starting to bear fruit.

Lesser number of births across the country has been decelerating the growth of one of the company’s core businesses, neonatology.

Mednax’s bottom-line growth has also been hit by a spike in its interest expenses by almost 160% in 2014 as well as in 2015 and by 173% in 2016. This has led to a faster increase in expenses than revenue growth. It is to be noted that the company’s operating expenses have grown more than revenues since 2011. While revenues have grown at a CAGR of 15.02% from 2011–2015, operating expenses have increased at a rate of 15.87% over the same time frame.

Overvalued Stock

The company has a trailing 12-month PE ratio of 18.24. This level compares unfavorably with the industry’s PE (TTM) of 15.22.

The company’s forward PE ratio of 17.37 is much higher than 13 for the industry.

Also, its PEG ratio of 1.32 is higher than 1.16 for the industry.

The stock’s valuation looks a bit expensive when compared with the industry.

Stocks to Consider

Some better-ranked stocks from the medical sector include IDEXX Laboratories, Inc. IDXX, , Inogen Inc. INGN  and AngioDynamics, Inc. ANGO.

While Inogen and IDEXX sport a Zacks Rank #1 (Strong Buy), AngioDynamicst carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

IDEXX Laboratories surpassed earnings estimates in the trailing four quarters with an average positive surprise of 14.7%.

Inogen delivered positive earnings surprises in three of the last four quarters with an average beat of 49.08%.

AngioDynamics surpassed earnings estimates in the trailing four quarters with an average positive surprise of 20.91%.

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AngioDynamics, Inc. (ANGO): Free Stock Analysis Report
 
IDEXX Laboratories, Inc. (IDXX): Free Stock Analysis Report
 
Inogen, Inc (INGN): Free Stock Analysis Report
 
Mednax, Inc (MD): Free Stock Analysis Report
 
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