MEDNAX Stock Up On Accretive Acquisitions & Collaborations

MEDNAX Inc. (NYSE:MD) has been firing on all cylinders lately. Shares of this healthcare service provider has increased 13.3% in the last three months, driven by a plethora of accretive acquisitions in different specialties like neonatology, anesthesiology, maternal-fetal medicine and pediatric cardiology. The recent collaboration with International Business Machines (NYSE:IBM) is also positive, in our view.

Most recently, MEDNAX announced the acquisition of Westchester Anesthesiologists, a private physician group practice based in White Plains, NY. Although entire details on the transaction have been kept under wraps, the acquisition was executed in cash and is expected to prove immediately accretive to earnings.

The private practice employs 31 full-time clinicians (27 anesthesiologists and 4 anesthetists) that provide services to White Plains Hospital, a 292-bed health care organization. Westchester Anesthesiologists also serves Rye Ambulatory Surgery Center, Surgical Specialty Center of Westchester and WESTMED Medical Group.

Member of Watson Health Team

MEDNAX recently became a member of the IBM led Watson Health medical imaging collaboration. The group comprises 15 members including leading healthcare providers like Hologic Inc. (NASDAQ:HOLX) as well as major health systems, academic medical centers, ambulatory radiology providers and imaging technology companies.

The collaboration aims at expanding the scope of cognitive imaging in treating breast, lung, and other cancer, diabetes, eye health, brain disease and heart disease and related conditions, such as stroke.

Acquisitions Driving Growth

MEDNAX’s latest acquisition follows the $400 million takeover of Revenue Cycle Management (RCM) System provider Cardon Outreach. Although the deal raised some eyebrows, particularly credit rating firm Moody’s (NYSE:MCO) , the takeover is expected to add 6 cents to earnings initially and scale to 14 cents annually for the “foreseeable future”, driven by the anticipated low double-digit organic revenue growth.

Moody’s apprehension is based on the fact that the acquisition will be credit negative as it slightly increases MEDNAX’s financial leverage.

However, MEDNAX – a Zacks Rank #3 (Hold) company – noted that 85% of the first-quarter 2016 revenue growth (18% year over year) came from the recent buyouts. The vRad takeover (May 2015) contributed less than half of this growth, as did practice acquisitions; while Alegis accounted for the remainder.