Birth Trends Are Not Mednax's Friend; Baird Downgrades

Shares of MEDNAX Inc MD have recovered from their steep downturn in response to the company’s lower-than-expected fourth-quarter 2016 results. Although Street expectations do not appear “as ambitious as prior years,” the company’s organic growth is likely to be “underwhelming,” Baird’s Whit Mayo said in a report.

Mayo downgraded the rating on Mednax from Buy to Neutral, while maintaining the price target at $72. The analyst commented that his view on the risk/reward profile was “mixed.” The company’s shares are currently trading at a 20 percent to Envision Healthcare Corporation EVHC, which is “hard to overlook.”

Reasons For Downgrade

Mayo's reasons for the downgrade:

• Run-up in shares.
• Weak organic growth, with “proprietary birth data” indicating “worsening trends.”
• High relative valuation.
• “2017 sets up to be overly reliant on M&A.”

Birth Trends Decelerate

The analyst mentioned four macro trends that were adversely impacting U.S. birth trends:

• Women are waiting longer and having fewer babies.
• While women over 30 years of age are having more babies, “the declines in the 20–29 categories more than offsets the older cohort increases.”
• Teen pregnancies have declined by nearly 50 percent since 2007.
• A decade of decline in pre-term rates.

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