Maximus (MMS)

Government services provider Maximus (NYSE:MMS) beat Wall Street’s revenue expectations in Q1 CY2025, but sales were flat year on year at $1.36 billion. The company expects the full year’s revenue to be around $5.33 billion, close to analysts’ estimates. Its non-GAAP profit of $2.01 per share was 45.7% above analysts’ consensus estimates.

Company Overview

With nearly 50 years of experience translating public policy into operational programs that serve millions of citizens, Maximus (NYSE:MMS) provides operational services, clinical assessments, and technology solutions to government agencies in the U.S. and internationally.

The sector has historically benefitted from steady government spending on defense, infrastructure, and regulatory compliance, providing firms long-term contract stability. However, the Trump administration is showing more willingness than previous administrations to upend government spending and bloat. Whether or not defense budgets get cut, the rising demand for cybersecurity, AI-driven defense solutions, and sustainability consulting should benefit the sector for years, as agencies and enterprises seek expertise in navigating complex technology and regulations. Additionally, industrial automation and digital engineering are driving efficiency gains in infrastructure and technical consulting projects, which could help profit margins.

Maximus competes with government insourced operations and other service providers including General Dynamics Information Technology, Deloitte, Leidos, Accenture, Booz Allen Hamilton, and Conduent. In international markets, competitors include Serco, Capita, and Atos.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years.

With $5.40 billion in revenue over the past 12 months, Maximus is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions.

As you can see below, Maximus’s 11.1% annualized revenue growth over the last five years was excellent. This shows it had high demand, a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Maximus’s annualized revenue growth of 6.5% over the last two years is below its five-year trend, but we still think the results were respectable.

This quarter, Maximus’s $1.36 billion of revenue was flat year on year but beat Wall Street’s estimates by 5.2%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Maximus was profitable over the last five years but held back by its large cost base. Its average operating margin of 8.3% was weak for a business services business.

Analyzing the trend in its profitability, Maximus’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Maximus generated an operating profit margin of 11.2%, up 1.8 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Maximus’s EPS grew at an astounding 16.1% compounded annual growth rate over the last five years, higher than its 11.1% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

Diving into the nuances of Maximus’s earnings can give us a better understanding of its performance. A five-year view shows that Maximus has repurchased its stock, shrinking its share count by 11%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q1, Maximus reported EPS at $2.01, up from $1.57 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 Maximus’s full-year EPS of $6.82 to shrink by 5.7%.

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.

Maximus has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.7% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that Maximus’s margin dropped by 5.9 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Maximus’s free cash flow clocked in at $25.51 million in Q1, equivalent to a 1.9% margin. The company’s cash profitability regressed as it was 4.6 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Maximus historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 12.8%, somewhat low compared to the best business services companies that consistently pump out 25%+.

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. Over the last few years, Maximus’s ROIC averaged 2.9 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Maximus reported $108.1 million of cash and $1.62 billion 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 $601.3 million of EBITDA over the last 12 months, we view Maximus’s 2.5× net-debt-to-EBITDA ratio as safe. We also see its $37.58 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 Maximus blew past analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid print. The stock traded up 5.8% to $71.11 immediately following the results.

Updated: May 16, 2025 at 12:06 AM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Maximus.

Maximus isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was impressive over the last five years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. And while the company’s astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its cash profitability fell over the last five years.

Maximus’s P/E ratio based on the next 12 months is 11.7x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $103 on the company (compared to the current share price of $75.33).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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