E Under The Spotlight: Maximus

Since 1975, MAXIMUS (MMS) has operated under its founding mission of Helping Government Serve the People®, enabling citizens around the globe to successfully engage with their governments at all levels and across a variety of health and human services programs. MAXIMUS delivers innovative business process management and technology solutions that contribute to improved outcomes for citizens and higher levels of productivity, accuracy, accountability and efficiency of government-sponsored programs.

MAXIMUS was founded in 1975 and grew both organically and through acquisitions during the early 2000s. Beginning in 2006, the company narrowed the service offerings to focus in the area of business process services (BPS) primarily in the health services and human services markets. In parallel, the firm divested or exited a number of non-core businesses that fell outside these two areas. Subsequent growth was driven by the expansion of their health services business around the globe, new welfare-to-work contracts outside the United States and the growth of their business with the United States Federal Government.

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. Contracts are typically multi-year arrangements which enables the company to identify 90% of its anticipated revenues over the next 12 months. Client relationships frequently last for decades.

About 41% of the company’s $2.9 billion revenues in fiscal 2019 were generated by the U.S. Health and Human Services business segment, 38% by the U.S. Federal Services segment and 21% by the Outside the U.S. segment.

In fiscal 2019, the 21% revenue growth and 9% earnings growth was driven by the acquisition of the federal citizen engagement centers business for $400 million in cash.

Over the past five years, sales have compounded at an 8% annual rate with net income and EPS compounding at healthy 11% and 12% rates,respectively, 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 U.K. 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.

During fiscal 2019, the company generated approximately $297 million in free cash flow. Thanks to the strong cash flow, the company sharply boosted its annual dividend from $.18 per share to $1.00 a share. MAXIMUS recently increased the dividend an additional 12% for fiscal 2020 to $1.12 per share.

MAXIMUS generates profitable growth with return on shareholders’ equity averaging 23% over the last five years. Year-to-date signed contract awards at 9/30/19 totaled $2.6 billion. The sales pipeline at 9/30/19 was about $30.2 billion comprised of about $2.9 billion in proposals pending, $1.2 billion in proposals in preparation and $26.1 billion in opportunities tracking.

Management expects revenues in fiscal 2020 to range between $3.15 billion and $3.3  billion which should generate EPS in the range of $3.95-$4.15. The firm expects free cash flow in the range of $275 million and $325 million for fiscal 2020. Long-term investors may want to contract with MAXIMUS, a high-quality company with healthy growth and strong cash flows. Buy.

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