BUSINESS
ModivCare Inc., a technology-enabled healthcare services company, provides a suite of integrated supportive care solutions for public and private payors and patients. The company operates through four segments: Non-Emergency Medical Transportation (NEMT), Personal Care, Remote Patient Monitoring (RPM), and the Matrix Investment. The NEMT segment offers contact center management, network credentialing, claims management, and non-emergency medical transport management services for Medicaid or Medicare eligible members, whose limited mobility or financial resources hinder their ability to access necessary healthcare and social services.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to exceed the cost of capital, MODV is expected to continue to be a major Value Builder.
ModivCare has a current Value Trend Rating of B (Positive).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing inconsistent signals. ModivCare has a very high Appreciation Score of 89 but a neutral Power Rating of 48, leading to the Positive Value Trend Rating.
ModivCare’s stock is selling well below targeted value. The current stock price of $25.48 compares to targeted value 12 months forward of $93.
ModivCare’s very high appreciation potential results in an appreciation score of 89 (only 11% of the universe has greater appreciation potential.)
ModivCare has a Power Rating of 48. (This neutral Power Rating indicates that MODV’s chances of enjoying attractive investment performance over the near to intermediate term are only average.)
Factors contributing to this neutral Power Rating include: recent price action has been slightly unfavorable; and earnings estimate behavior for MODV has been slightly negative recently. An offsetting factor is the Transit & Passenger Transportation comparison group is in an extremely strong phase currently.
INVESTMENT PROFILE
ModivCare’s financial strength is below average. Financial strength rating is 31.
Relative to the S&P 500 Composite, ModivCare Inc has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that MODV is extremely high risk. High historical growth is a positive for ModivCare. Relative weaknesses include: low historical profitability, low financial strength, high financial leverage, and high earnings variability. ModivCare’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. MODV has unusually low market capitalization.
CURRENT SIGNALS
ModivCare’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
ModivCare’s current technical position is very weak. The stock price is in a 0.2 month down move. The stock has declined 31.8% from its prior high. The stock price is below its 200 day moving average which is in a downtrend.
ALERTS
Extremely important negative changes in investment behavior have recently occurred for ModivCare Inc (NASDAQ: MODV): negative upside/downside volume developed, its shorter term price trend turned down, and the stock fell on very heavy volume.
ModivCare Inc (NASDAQ: MODV). Notable negative changes in fundamentals have recently occurred: significant quarterly sales deceleration occurred, and significant quarterly earnings deceleration occurred.
The stock is currently rated B.
ModivCare Inc (NASDAQ: MODV) stock closed at $25.48 on 2/26/24 after a decline of -4.3%. Moreover, exceptionally high trading volume at 535% of normal accompanied the decline. The stock has declined -50.0% during the last week and has been weak relative to the market over the last nine months.
CASH FLOW
In 2022, ModivCare experienced a very significant reduction in cash of -$118.4 million (-89%). Sources of cash were much lower than uses. Cash generated from 2022 EBITDA totaled +$210.7 million. Non-operating uses consumed -$83.1 million (-39% of EBITDA). Cash taxes consumed -$34.3 million (-16% of EBITDA). Re-investment in the business amounted to -$164.2 million (-78% of EBITDA). On a net basis, debt investors received -$60.5 million (-29% of EBITDA) while equity investors supplied +$13.1 million (+6% of EBITDA).
ModivCare’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Modivcare Peer Group. In most years, ModivCare was in the third quartile and lower quartile. Currently, ModivCare is lower quartile at -39% of EBITDA (-$83.1 million).
ModivCare’s Cash Taxes, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Modivcare Peer Group. (Since 2020 Cash Taxes, %EBITDA has accelerated very sharply.) In most years, ModivCare was in the top quartile and lower quartile. Currently, ModivCare is substantially below median at -16% of EBITDA (-$34.3 million).
ModivCare’s Business Re-investment, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Modivcare Peer Group. In most years, ModivCare was in the second quartile and top quartile. Currently, ModivCare is slightly above median at -78% of EBITDA (-$164.2 million).
ModivCare’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Modivcare Peer Group. (Since 2020 Debt Investors, %EBITDA has experienced a very sharp decline.) In most years, ModivCare was in the third quartile and top quartile. Currently, ModivCare is lower quartile at -29% of EBITDA (-$60.5 million).
ModivCare’s Equity Investors, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Modivcare Peer Group. (Since 2020 Equity Investors, %EBITDA has experienced a very sharp recovery.) In most years, ModivCare was in the top quartile and lower quartile. Currently, ModivCare is substantially above median at +6% of EBITDA (+$13.1 million).
ModivCare’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Modivcare Peer Group. (Since 2019 Change in Cash, %EBITDA has accelerated very sharply.) In most years, ModivCare was in the top quartile and lower quartile. Currently, ModivCare is lower quartile at -56% of EBITDA (-$118.4 million).
ModivCare’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Modivcare Peer Group as well. (Since 2020 Cash, %Revenue has experienced a very sharp decline.) In most years, ModivCare was in the second quartile and lower quartile. Currently, ModivCare is lower quartile at +1%.
PROFITABILITY
ModivCare’s return on equity has eroded very significantly since 2013. The current level is -130.% versus the high of 13.5% and the low of -130.%.
This very significant erosion was due to very strong negative trend in pretax operating return and strong negative trend in non-operating factors.
The productivity of ModivCare’s assets declined over the full period 2013-2023: asset turnover has suffered a volatile overall downtrend even as it experienced a very sharp recovery after the 2020 low.
Reinforcing this trend, pretax margin experienced a very strong overall downtrend that accelerated very sharply from the 2020 level.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
ModivCare’s return on equity is lower quartile (-130.%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is lower quartile (-11.8%) reflecting asset turnover that is above median (1.56X) and lower quartile pretax margin (-7.6%).
Tax “keep” rate (income tax management) is upper quartile (97.9%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is upper quartile (11.31X).
GROWTH RATES
Overall, ModivCare’s growth rate has slowed considerably in recent years.
ModivCare’s historical income statement growth and balance sheet growth have diverged. Revenue growth has fallen short of asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 6.7% per year. (More recently it has been 26.2%.)
Total asset growth has been 12.4% per year. (More recently it has been 28.5%.)
Annual E.P.S. growth has been 12.9% per year.
Equity growth has been 3.8% per year. (More recently it has been -25.5%.)
ModivCare’s consensus growth rate forecast (average of Wall Street analysts) is 8.5% — in line with the average of the historical growth measures.
Relative to the Modivcare Peer Group, ModivCare’s historical growth measures are erratic. E.P.S. growth (12.9%) has been substantially below median. Total asset growth (12.4%) has been at the lower quartile. Revenue growth (6.7%) has been lower quartile. Equity growth (3.8%) has been lower quartile.
Consensus growth forecast (8.5%) is lower quartile.
PRICE HISTORY
Over the full time period, ModivCare’s stock price performance has been variable and significantly below market. Between April, 2013 and February, 2024, ModivCare’s stock price rose +46%; relative to the market, this was a -54% loss. Significant price moves during the period: 1) January, 2023 – September, 2023: -71%; 2) August, 2021 – June, 2022: -57%; 3) March, 2020 – January, 2021: +189%; and 4) November, 2016 – June, 2018: +114%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -62.9% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -62.9% is lower quartile relative to ModivCare Inc Peer Group.
Current 5-year total return performance of -9.1% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of -9.1% relative to S&P 500 Composite, ModivCare’s total return performance is lower quartile relative to ModivCare Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, MODV’s overall valuation is quite low. Ratio of enterprise value/earnings before interest and taxes is near the lower quartile. Price/equity ratio is below median. Ratio of enterprise value/assets is lower quartile. Ratio of enterprise value/revenue is lower quartile. Price/earnings ratio is unavailable.
Relative to ModivCare Peer Group, MODV’s overall valuation is quite low. Ratio of enterprise value/earnings before interest and taxes is below median. Price/equity ratio is below median. Ratio of enterprise value/assets is lower quartile. Ratio of enterprise value/revenue is lower quartile. Price/earnings ratio is unavailable.
ModivCare has a major value gap compared to the median. For MODV to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.54X to 1.23X. If MODV’s ratio of enterprise value/revenue were to rise to 1.23X, its stock price would be higher by $131 to $156.
For MODV to achieve upper quartile valuation relative to the ModivCare Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.54X to 2.39X. If MODV’s ratio of enterprise value/revenue were to rise to 2.39X, its stock price would increase by $351 from the current level of $25.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to exceed the cost of capital, MODV is expected to continue to be a major Value Builder.
ModivCare’s current Price Target of $92 represents a +262% change from the current price of $25.48.
This very high appreciation potential results in an appreciation score of 89 (only 11% of the universe has greater appreciation potential.)
With this high Appreciation Score of 89, the neutral Power Rating of 48 results in an Value Trend Rating of B.
ModivCare’s current Price Target is $92 (-2% from the 2022 Target of $94 but +262% from the 02/26/24 price of $25.48). This plateau in the Target is the result of a +15% increase in the equity base and a -14% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a large negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a very large positive impact.
PTR’s return on equity forecast is 22.0% — below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly above the 2017 low of 6%.
PTR’s growth forecast is 12.0% — slightly below our recent forecasts. Forecasted growth suffered a dramatic, erratic decline between 2014 and 2022. The current forecast is significantly above the 2019 low of 2%.
PTR’s cost of equity forecast is 13.7% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2017 low of 5.7%.
At ModivCare’s current price of $25.48, investors are placing a negative value of $-24 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 16.0% per year, and a return on equity of 24.8% versus a cost of equity of 15.3%.
PTR’s 2024 Price Target of $92 is based on these forecasts and reflects an estimated value of existing assets of $31 and a value of future investments of $62.
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