Mednax outrageously oversold ahead of earnings

NYSE:MD   Pediatrix Medical Group, Inc.
It's not every day you see a stock get this oversold on its weekly chart. Mednax, Inc. has lost about 50% of its value over the past year due to some earnings and revenue misses and year-over-year declines. After this drop, Mednax has a very attractive P/E of 8.66. Its forward P/E of 6.84 indicates that its earnings are expected to grow. S&P Capital IQ rates the company as highly undervalued.

Mednax has recently had some analyst upgrades, which could serve as an upward catalyst. Also, with an ESP of 2.13% from Zacks, Mednax may beat analyst estimates when it next reports earnings on August 1. MedData's revenue has grown over the last several earnings reports, and earnings misses have been mostly due to administrative and interest payment costs. An ongoing share buyback program has reduced the number of shares of common stock, which means the company's profit will be divided by fewer shares on the next report.

On the other hand, Mednax managed to miss both its own forecasts and the analysts' estimates on its last report, despite its buyback program. I don't see a lot of signs that Mednax has made progress toward cutting costs and improving margins since then. References to "restructuring" in past earnings reports are vague, but they probably refer to the so-far unsuccessful effort to sell the MedData division of the company. S&P Capital IQ rates the company as highly financially healthy, but I think that's an exaggeration. As best I can tell, the company has some pretty high-interest debt and is burning through its cash reserves. Employee reviews on Glassdoor suggest that top executives may not be providing competent leadership.

These concerns aside, Mednax's undervaluation and analyst ratings make it a potentially attractive buy ahead of earnings. Even a small earnings beat could give the stock a big bump. I see some bullish divergence on the chart that suggests a slowing of its downward momentum. I'll be watching closely for signs of positive investor sentiment, with an alert set to buy at the first sign of a breakout above the parallel channel.


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