Wells Fargo Downgrades Maximus After Rally

Despite mixed June quarter results, Maximus, Inc’s MMS stock rallied on “a combination of management loosely blessing FY20 (Sept) consensus and giving some robust pipeline figures,” according to Wells Fargo.

The Analyst

Wells Fargo’s Jamie Stockton downgraded Maximus from Outperform to Market Perform, keeping the price target at $83.

The Thesis

Maximus reported mixed fiscal third-quarter results and its full-year guidance reflects an organic growth rate of -4%, Stockton said in the note.

The company’s quarterly revenue came in at $731 million, representing a decline of 4% in its organic revenue. The figure missed the consensus estimate of $751 million, mainly due to the weak performance of the U.S. Health & Human segment, the analyst mentioned.

Despite the revenue miss, the U.S. Federal segment delivered strong profitability, which boosted EPS to 97 cents, ahead of the consensus estimate of 93 cents.

Maximus slightly lowered its fiscal full-year revenue guidance to reflect less Census revenue and some currency headwinds.

Stockton mentioned that the company’s organic growth had been -3% in 2018 and is estimated at -4% for 2019. So, fundamentals seem poised to improve in 2020. The analyst added, however, that Maximus is experiencing a 6% tailwind from the Census contract, which could turn into a 9% headwind in 2021.

Price Action

Shares of Maximus declined 3.4% to $76.75 at time of publishing on Friday.