Pediatrix Medical Group (MD)

Pediatric healthcare provider Pediatrix Medical Group (NYSE:MD) reported Q3 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 3.6% year on year to $492.9 million. Its non-GAAP profit of $0.67 per share was 43.9% above analysts’ consensus estimates.

Company Overview

With a network of approximately 2,620 affiliated physicians caring for some of the most vulnerable patients, Pediatrix Medical Group (NYSE:MD) provides specialized physician services focused on neonatal, maternal-fetal, pediatric cardiology and other pediatric subspecialty care across 37 states.

The skilled nursing services industry provides specialized care for patients requiring medical or rehabilitative support after hospital stays or for chronic conditions. These companies benefit from stable demand driven by an aging population and recurring revenue from Medicare, Medicaid, and private insurance. However, the industry faces challenges such as thin margins due to high labor costs and stringent regulatory requirements. Looking ahead, the industry is supported by tailwinds from an aging population, which means higher chronic disease prevalence. Advances in medical technology, including using AI to better predict, diagnose, and treat illnesses, may reduce hospital readmissions and improve outcomes. However, headwinds such as labor shortages, wage inflation, and potential government reimbursement cuts pose challenges. Adapting to value-based care models may further squeeze margins by requiring investments in training, technology, and compliance.

Pediatrix Medical Group competes with other physician services organizations like TeamHealth, Envision Healthcare, and Sound Physicians, as well as hospital-employed physician groups and academic medical centers that directly employ specialists in neonatal, maternal-fetal, and pediatric subspecialty care.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $1.92 billion in revenue over the past 12 months, Pediatrix Medical Group is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Pediatrix Medical Group’s sales grew at a tepid 1.6% compounded annual growth rate over the last five years. This fell short of our benchmarks and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Pediatrix Medical Group’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.3% annually.

We can dig further into the company’s revenue dynamics by analyzing its same-store sales, which show how much revenue its established locations generate. Over the last two years, Pediatrix Medical Group’s same-store sales averaged 4.8% year-on-year growth. Because this number is better than its revenue growth, we can see its sales from existing locations are performing better than its sales from new locations.

This quarter, Pediatrix Medical Group’s revenue fell by 3.6% year on year to $492.9 million but beat Wall Street’s estimates by 3.2%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.

Pediatrix Medical Group was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.2% was weak for a healthcare business.

On the plus side, Pediatrix Medical Group’s operating margin rose by 1.2 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its recent improvements as the company’s margin has increased by 2.7 percentage points on a two-year basis.

This quarter, Pediatrix Medical Group generated an operating margin profit margin of 13.8%, up 7.2 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Pediatrix Medical Group’s EPS grew at a spectacular 12.5% compounded annual growth rate over the last five years, higher than its 1.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Pediatrix Medical Group’s earnings to better understand the drivers of its performance. As we mentioned earlier, Pediatrix Medical Group’s operating margin expanded by 1.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Pediatrix Medical Group reported adjusted EPS of $0.67, up from $0.44 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Pediatrix Medical Group’s full-year EPS of $2.05 to shrink by 11.2%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Pediatrix Medical Group has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5% over the last five years, slightly better than the broader healthcare sector.

Taking a step back, we can see that Pediatrix Medical Group’s margin expanded by 14.8 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Pediatrix Medical Group historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.3%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Pediatrix Medical Group’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Pediatrix Medical Group reported $463.1 million of cash and $642.3 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $278.5 million of EBITDA over the last 12 months, we view Pediatrix Medical Group’s 0.6× net-debt-to-EBITDA ratio as safe. We also see its $7.76 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Pediatrix Medical Group blew past analysts’ same-store sales expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates on better proftability. Zooming out, we think this was a very solid print. The stock traded up 11.9% to $19 immediately after reporting.

Updated: December 4, 2025 at 10:55 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Pediatrix Medical Group, you should also grasp the company’s longer-term business quality and valuation.

Pediatrix Medical Group’s business quality ultimately falls short of our standards. To begin with, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its subscale operations give it fewer distribution channels than its larger rivals.

Pediatrix Medical Group’s P/E ratio based on the next 12 months is 10.8x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $22.67 on the company (compared to the current share price of $22.28).