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:

1. Women are waiting longer and having fewer babies.
2. 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.”
3. Teen pregnancies have declined by nearly 50 percent since 2007.
4. A decade of decline in pre-term rates.

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