(By Balachander) Deutsche Bank (DB) downgraded its rating on shares of Mednax Inc. (NYSE:MD) to "Sell" from "Hold", saying the investment case on the company could be challenged over the next 12 months against a backdrop of policy initiatives to reduce NICU utilization.
The bank also reduced price target on the stock to $58 from $73.
"The Sell rating underpins our view that: (1) Street estimates for 2013 are too high; (2) MD's trading multiple may slip if fundamentals become less certain; (3) anesthesia upside is already baked-into expectations; and (4) the market may assign only transient value to Medicaid rate parity (although a clear upside risk to 2013-2014 EPS)," DB wrote in a note.
Sunrise, Florida-based Mednax provides neonatal, maternal-fetal, pediatric subspecialties and anesthesia physician services in the United States and Puerto Rico.
Empirical evidence of NICU pressure is beginning to surface, yet DB believes industry and government initiatives are accelerating in a manner that are likely to challenge MD's base business.
"Given the NICU mix (60 percent of 2011 revs) and the EPS sensitivity to shifts in the pre-term rate, we believe a Sell-rating is warranted at this juncture," the bank said.
The stock, which has been trading between $58.48 and $75.86 over the past year, fell 7.03 percent to trade at $62.05 on Wednesday.