Most investors aren’t familiar with Mednax (MD). The company started in 1979 as Pediatrix Medical Group, which provides maternal and newborn care through clinics and hospitals. Then in 2007 Pediatrix expanded into anaesthesia services with the introduction of American Anesthesiology, and in 2009 the company name was changed to MEDNAX. This past May the company delved into radiology when it announced plans to acquire Virtual Radiologic Corp, giving the company three areas of medical care.
I consider Mednax to be a mid-teens grower. It has grown profits 14% a quarter the past three qtrs and 15% per year the past decade. Its estimated long-term growth rate is 13% per year. The stock’s gone up an average of 16% a year in the last decade.
Ten Year Chart
MD has had record annual profits every year since 2006, but the stock has had its ups-and-downs and has been sometimes hard to handle. The company has been investigated — and sometimes fined — for billing practices (Medicaid) on numerous occasions, causing the stock to drop. It’s also been investigated by the SEC for accounting on an acquisition it made. Although none of this news has stopped MEDNAX from growing, headline risk is a concern when owning MD, as future inquiries could result in the stock dropping. The stock lost half its value in February 1999 and a third of its value in May 2008.
Profit History
MD currently sells for 23x earnings, which I feel is high considering the headline risk. But this bad news is from many years ago, and maybe the company is running a tighter ship these days.
Looking at the Profit History table, MD’s P/E has previously maxed out at 18, and that’s what I feel MD should sell for now. My Fair Value is $66.
Sharek’s Take
Mednax is a machine when it comes to acquiring physician practices and growing the company. Right now the company is beating the street by a little each qtr and also upping Annual Profit Estimates. The stock is timely, no doubt. In fact the stock hasn’t fallen much in the past month even though the stock market has been in a correction. Still, I feel MD is high right now as it sells for 23 times earnings. I’ll keep MD on my radar and look to add it to the Conservative Growth Portfolio if it falls.
View the One Year Chart here. View the Earnings Table here.
