Intrinsic value of Maximus - MMS

Previous Close

$65.34

  Intrinsic Value

$51.93

stock screener

  Rating & Target

sell

-21%

  Value-price divergence*

-22%

Previous close

$65.34

 
Intrinsic value

$51.93

 
Up/down potential

-21%

 
Rating

sell

 
Value-price divergence*

-22%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MMS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 4.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  14.43
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  2,403
  2,451
  2,507
  2,572
  2,644
  2,724
  2,812
  2,908
  3,012
  3,123
  3,243
  3,372
  3,508
  3,654
  3,809
  3,973
  4,147
  4,332
  4,527
  4,733
  4,950
  5,179
  5,421
  5,677
  5,945
  6,228
  6,526
  6,840
  7,170
  7,517
  7,883
Variable operating expenses, $m
 
  2,146
  2,195
  2,250
  2,312
  2,381
  2,457
  2,539
  2,628
  2,724
  2,827
  2,898
  3,015
  3,141
  3,274
  3,415
  3,564
  3,723
  3,890
  4,067
  4,254
  4,451
  4,659
  4,879
  5,110
  5,353
  5,609
  5,879
  6,162
  6,461
  6,775
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  2,117
  2,146
  2,195
  2,250
  2,312
  2,381
  2,457
  2,539
  2,628
  2,724
  2,827
  2,898
  3,015
  3,141
  3,274
  3,415
  3,564
  3,723
  3,890
  4,067
  4,254
  4,451
  4,659
  4,879
  5,110
  5,353
  5,609
  5,879
  6,162
  6,461
  6,775
Operating income, $m
  287
  305
  313
  322
  332
  343
  356
  369
  384
  399
  416
  474
  493
  514
  535
  558
  583
  609
  636
  665
  696
  728
  762
  798
  836
  875
  917
  961
  1,008
  1,057
  1,108
EBITDA, $m
  358
  369
  378
  388
  398
  411
  424
  438
  454
  471
  489
  508
  529
  551
  574
  599
  625
  653
  682
  713
  746
  780
  817
  855
  896
  938
  983
  1,031
  1,080
  1,133
  1,188
Interest expense (income), $m
  0
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  17
  18
  20
  21
  23
  24
  26
  28
  30
  32
  34
  37
  39
  42
  45
  48
  51
Earnings before tax, $m
  286
  299
  306
  315
  325
  335
  347
  360
  373
  388
  404
  461
  479
  498
  519
  540
  563
  588
  614
  641
  670
  700
  732
  766
  801
  839
  878
  920
  963
  1,009
  1,057
Tax expense, $m
  106
  81
  83
  85
  88
  91
  94
  97
  101
  105
  109
  124
  129
  134
  140
  146
  152
  159
  166
  173
  181
  189
  198
  207
  216
  226
  237
  248
  260
  272
  286
Net income, $m
  178
  218
  224
  230
  237
  245
  253
  262
  273
  283
  295
  336
  350
  364
  379
  394
  411
  429
  448
  468
  489
  511
  534
  559
  585
  612
  641
  671
  703
  737
  772

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  66
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,349
  1,309
  1,339
  1,373
  1,412
  1,455
  1,502
  1,553
  1,608
  1,668
  1,732
  1,800
  1,873
  1,951
  2,034
  2,121
  2,214
  2,313
  2,417
  2,527
  2,643
  2,765
  2,895
  3,031
  3,174
  3,325
  3,484
  3,652
  3,828
  4,013
  4,208
Adjusted assets (=assets-cash), $m
  1,283
  1,309
  1,339
  1,373
  1,412
  1,455
  1,502
  1,553
  1,608
  1,668
  1,732
  1,800
  1,873
  1,951
  2,034
  2,121
  2,214
  2,313
  2,417
  2,527
  2,643
  2,765
  2,895
  3,031
  3,174
  3,325
  3,484
  3,652
  3,828
  4,013
  4,208
Revenue / Adjusted assets
  1.873
  1.872
  1.872
  1.873
  1.873
  1.872
  1.872
  1.873
  1.873
  1.872
  1.872
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
  1.873
Average production assets, $m
  203
  206
  211
  216
  222
  229
  236
  244
  253
  262
  272
  283
  295
  307
  320
  334
  348
  364
  380
  398
  416
  435
  455
  477
  499
  523
  548
  575
  602
  631
  662
Working capital, $m
  280
  218
  223
  229
  235
  242
  250
  259
  268
  278
  289
  300
  312
  325
  339
  354
  369
  386
  403
  421
  441
  461
  483
  505
  529
  554
  581
  609
  638
  669
  702
Total debt, $m
  166
  178
  193
  209
  227
  247
  269
  293
  319
  346
  376
  408
  443
  479
  518
  559
  602
  648
  697
  749
  803
  860
  921
  984
  1,052
  1,122
  1,197
  1,275
  1,358
  1,444
  1,536
Total liabilities, $m
  600
  612
  627
  643
  661
  681
  703
  727
  753
  780
  810
  842
  877
  913
  952
  993
  1,036
  1,082
  1,131
  1,183
  1,237
  1,294
  1,355
  1,418
  1,486
  1,556
  1,631
  1,709
  1,792
  1,878
  1,970
Total equity, $m
  749
  696
  712
  731
  751
  774
  799
  826
  855
  887
  921
  958
  997
  1,038
  1,082
  1,129
  1,178
  1,230
  1,286
  1,344
  1,406
  1,471
  1,540
  1,612
  1,689
  1,769
  1,854
  1,943
  2,037
  2,135
  2,239
Total liabilities and equity, $m
  1,349
  1,308
  1,339
  1,374
  1,412
  1,455
  1,502
  1,553
  1,608
  1,667
  1,731
  1,800
  1,874
  1,951
  2,034
  2,122
  2,214
  2,312
  2,417
  2,527
  2,643
  2,765
  2,895
  3,030
  3,175
  3,325
  3,485
  3,652
  3,829
  4,013
  4,209
Debt-to-equity ratio
  0.222
  0.260
  0.270
  0.290
  0.300
  0.320
  0.340
  0.350
  0.370
  0.390
  0.410
  0.430
  0.440
  0.460
  0.480
  0.500
  0.510
  0.530
  0.540
  0.560
  0.570
  0.580
  0.600
  0.610
  0.620
  0.630
  0.650
  0.660
  0.670
  0.680
  0.690
Adjusted equity ratio
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  178
  218
  224
  230
  237
  245
  253
  262
  273
  283
  295
  336
  350
  364
  379
  394
  411
  429
  448
  468
  489
  511
  534
  559
  585
  612
  641
  671
  703
  737
  772
Depreciation, amort., depletion, $m
  71
  65
  65
  66
  67
  67
  68
  69
  70
  71
  73
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  73
  76
  80
Funds from operations, $m
  91
  283
  289
  296
  304
  312
  321
  332
  343
  355
  368
  370
  385
  401
  417
  435
  453
  473
  494
  516
  539
  563
  589
  616
  645
  675
  707
  741
  776
  813
  852
Change in working capital, $m
  -89
  4
  5
  6
  6
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  22
  23
  24
  25
  27
  28
  29
  31
  33
Cash from operations, $m
  180
  279
  284
  290
  297
  305
  314
  323
  334
  345
  357
  359
  373
  388
  403
  420
  438
  457
  476
  497
  520
  543
  568
  594
  621
  650
  681
  713
  746
  782
  819
Maintenance CAPEX, $m
  0
  -24
  -25
  -25
  -26
  -27
  -28
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -73
  -76
New CAPEX, $m
  -46
  -3
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
Cash from investing activities, $m
  -87
  -27
  -30
  -30
  -32
  -34
  -35
  -36
  -38
  -39
  -42
  -44
  -45
  -48
  -50
  -53
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -80
  -84
  -88
  -92
  -97
  -102
  -107
Free cash flow, $m
  93
  251
  254
  259
  265
  271
  279
  287
  295
  305
  315
  315
  327
  340
  353
  368
  383
  399
  416
  434
  453
  474
  495
  517
  541
  566
  592
  620
  649
  680
  712
Issuance/(repayment) of debt, $m
  -45
  12
  14
  16
  18
  20
  22
  24
  26
  28
  30
  32
  34
  36
  39
  41
  44
  46
  49
  51
  54
  57
  60
  64
  67
  71
  74
  78
  82
  87
  91
Issuance/(repurchase) of shares, $m
  -33
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -85
  12
  14
  16
  18
  20
  22
  24
  26
  28
  30
  32
  34
  36
  39
  41
  44
  46
  49
  51
  54
  57
  60
  64
  67
  71
  74
  78
  82
  87
  91
Total cash flow (excl. dividends), $m
  4
  264
  268
  275
  283
  291
  301
  311
  321
  333
  345
  348
  361
  376
  392
  409
  426
  445
  465
  486
  508
  531
  555
  581
  608
  637
  667
  699
  732
  767
  804
Retained Cash Flow (-), $m
  -137
  -13
  -16
  -18
  -21
  -23
  -25
  -27
  -29
  -32
  -34
  -36
  -39
  -41
  -44
  -47
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -104
Prev. year cash balance distribution, $m
 
  66
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  316
  252
  257
  262
  269
  276
  283
  292
  301
  311
  311
  323
  335
  348
  362
  377
  393
  410
  427
  446
  466
  487
  509
  532
  556
  582
  609
  638
  668
  700
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  303
  231
  224
  216
  208
  200
  191
  182
  173
  163
  148
  138
  127
  117
  106
  96
  85
  75
  66
  57
  48
  40
  33
  27
  22
  17
  13
  10
  7
  5
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

MAXIMUS, Inc. provides business process services (BPS) to government health and human services agencies. The Company operates through three segments: U.S. Federal Services, Health Services and Human Services. The U.S. Federal Services segment provides BPS and program management for large government programs, independent health review and appeals services for both the United States Federal Government, and state-based programs and technology solutions for civilian federal programs. The Health Services segment provides a range of BPS, as well as related consulting services, for state, provincial and national government programs. The Human Services segment provides national, state and local human services agencies with a range of BPS and related consulting services for welfare-to-work, child support, higher education and K-12 special education programs.

FINANCIAL RATIOS  of  Maximus (MMS)

Valuation Ratios
P/E Ratio 23.9
Price to Sales 1.8
Price to Book 5.7
Price to Tangible Book
Price to Cash Flow 23.7
Price to Free Cash Flow 31.8
Growth Rates
Sales Growth Rate 14.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -56.2%
Cap. Spend. - 3 Yr. Gr. Rate -5.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 22.2%
Total Debt to Equity 22.2%
Interest Coverage 0
Management Effectiveness
Return On Assets 13.6%
Ret/ On Assets - 3 Yr. Avg. 14.9%
Return On Total Capital 20.5%
Ret/ On T. Cap. - 3 Yr. Avg. 23.4%
Return On Equity 26.2%
Return On Equity - 3 Yr. Avg. 26.6%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 23.4%
Gross Margin - 3 Yr. Avg. 24.8%
EBITDA Margin 14.9%
EBITDA Margin - 3 Yr. Avg. 15.4%
Operating Margin 11.9%
Oper. Margin - 3 Yr. Avg. 12.5%
Pre-Tax Margin 11.9%
Pre-Tax Margin - 3 Yr. Avg. 12.5%
Net Profit Margin 7.4%
Net Profit Margin - 3 Yr. Avg. 7.8%
Effective Tax Rate 37.1%
Eff/ Tax Rate - 3 Yr. Avg. 37.2%
Payout Ratio 6.7%

MMS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MMS stock intrinsic value calculation we used $2403 million for the last fiscal year's total revenue generated by Maximus. The default revenue input number comes from 2016 income statement of Maximus. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MMS stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for MMS is calculated based on our internal credit rating of Maximus, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Maximus.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MMS stock the variable cost ratio is equal to 87.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for MMS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Maximus.

Corporate tax rate of 27% is the nominal tax rate for Maximus. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MMS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MMS are equal to 8.4%.

Life of production assets of 8.3 years is the average useful life of capital assets used in Maximus operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MMS is equal to 8.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $749 million for Maximus - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 64.353 million for Maximus is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Maximus at the current share price and the inputted number of shares is $4.2 billion.

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COMPANY NEWS

Financial statements of MMS
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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