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Reasons to Retain MAXIMUS (MMS) Stock in Your Portfolio

Zacks.com logo Zacks.com 10/13/2020

MAXIMUS, Inc. MMS shares have gained 12.1% over the past six months, outperforming the 8.2% rally of the industry it belongs to. We believe that the company has the capacity to carry on with this momentum.

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Factors Supporting the Rally

With more than 40 years of experience, MAXIMUS has grown to be a leading operator of government health and human-services programs globally. The company’s business-process management expertise and ability to deliver cost-effective, efficient and high-scale solutions position it as a lucrative partner for governments. MAXIMUS maintains solid relationships and strong reputation with governments, and long-term contracts provide it with predictable recurring-revenue streams.

To sustain the quality of its services amid the pandemic, the company is using a hybrid operational model, maintaining delivery through a mix of work-from-home arrangements and safe, on-site working arrangements. MAXIMUS’s performance remains strong, thanks to the census contract in the U.S. Federal Services Segment and new COVID-19-response work such as contact tracing and assistance with unemployment benefits.

Notably, the company has expanded contact-tracing work in five states– Florida, Indiana, Kentucky, Missouri and Arizona.

Hurdles to Counter

Poor performance of the Outside the U.S. segment has been weighing on MAXIMUS’ top line and margins for quite some time. The segment’s revenues declined 22.5% year over year in the third quarter of fiscal 2020, with the operating loss amounting to $5.8 million.

The company’s cash and cash equivalent of $82 million at the end of third-quarter fiscal 2020 was well below the $145 million long-term debt level, underscoring that the company doesn’t have enough cash to meet this debt burden.

Zacks Rank and Stocks to Consider

MAXIMUS currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are Republic Services RSG, TransUnion TRU and ICF International ICFI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected earnings per share (three to five years) growth rate for Republic Services, TransUnion and ICF International is 7.9%, 14% and 10%, respectively.

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