(By Balachander) Mednax Inc. (NYSE:MD) shares were downgraded to "Hold" from "Buy" and price target lowered to $73 from $81 by Deutsche Bank analyst Darren Lehrich.
"Our U/G last Oct was predicated on growth in the core business stabilizing in the 3% to 3.5% range, and much greater potential earnings upside / multiple expansion from an accelerating M&A trend," the analyst wrote.
Lehrich acknowledges that it is still early in MD's anesthesia M&A trajectory. "Yet, we fear the co's slower pace of deals, coupled with a change in the co's margin profile due to the mix of acquired businesses, will lead to less multiple expansion than originally thought," he said.
The analyst said YTD acquisition announcements are pacing below his original expectations. "The confluence of deal pacing, a slightly lower S-U growth outlook by mgmt (to +1.5% to +3.5% or down 100 bps from prior), and mix/margin issues – lead MD's Q2 guidance to imply pretty flat yoy EPS growth. We see this outlook as a real disappointment, and indicative of potentially weaker underlying trends."
"Key downside risks: Medicaid mix, pricing, timing of M&A. Key upside risks: pot'l for Medicaid PCP code changes, M&A, buyback," the analyst said.
Sunrise, Florida-based Mednax provides neonatal, maternal-fetal, other pediatric subspecialties, and anesthesia physician services in the United States and Puerto Rico.
The stock, which has been trading in the 52-week range of $58.48 to $75.86, fell 3.7 percent to trade at $64.69 on Friday.