The stock of Mednax (NYSE:MD, 30-year Financials) is estimated to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $31.96 per share and the market cap of $2.8 billion, Mednax stock appears to be modestly overvalued. GF Value for Mednax is shown in the chart below.
Because Mednax is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Mednax has a cash-to-debt ratio of 0.35, which is worse than 67% of the companies in the industry of Healthcare Providers & Services. The overall financial strength of Mednax is 4 out of 10, which indicates that the financial strength of Mednax is poor. This is the debt and cash of Mednax over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Mednax has been profitable 8 years over the past 10 years. During the past 12 months, the company had revenues of $1.8 billion and loss of $9.09 a share. Its operating margin of 9.68% better than 70% of the companies in the industry of Healthcare Providers & Services. Overall, GuruFocus ranks Mednax's profitability as fair. This is the revenue and net income of Mednax over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Mednax is -15.9%, which ranks worse than 89% of the companies in the industry of Healthcare Providers & Services. The 3-year average EBITDA growth rate is -32.9%, which ranks in the bottom 10% of the companies in the industry of Healthcare Providers & Services.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Mednax's return on invested capital is 4.00, and its cost of capital is 8.65. The historical ROIC vs WACC comparison of Mednax is shown below:
In summary, Mednax (NYSE:MD, 30-year Financials) stock gives every indication of being modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the bottom 10% of the companies in the industry of Healthcare Providers & Services. To learn more about Mednax stock, you can check out its 30-year Financials here.
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