We recently compiled a list of the 8 Most Undervalued Industrial Stocks to Buy According to Analysts. In this article, we are going to take a look at where Maximus, Inc. (NYSE:MMS) stands against the other undervalued industrial stocks.
Despite labor shortages, supply chain disruptions, and uncertain demand, the manufacturing industry remains on the front foot. Market experts believe that the production of industrial goods— a segment consisting of aircraft, automobiles, chemicals, computers, heavy machinery, oil, and steel— is expected to see strong momentum in the near term. This broader industry is expected to be supported by the generational pivot from machine-based assembly lines to “Smart Factories.” The industry continues to focus on robotics, the Internet of Things (IoT), Augmented Reality (AR), and numerous other cutting-edge technologies.
As per MarketsandMarkets, the global Industry 5.0 should reach US$255.7 billion by 2029, demonstrating a CAGR of ~31.2 % between 2024 – 2029. The experts opine that numerous factors are expected to propel this growth, including rapid technological advancements in AI, robotics, and Industrial 3D Printing, among others. These advancements respond to the increased demand for customized products and personalized experiences and promote a human-centric approach to manufacturing, empowering workers with advanced tools and technologies.
Economic Conditions and Impact on Industrial Demand
The economy has been demonstrating mixed signals when it comes to the future of expansion. As per Newmark, consumer spending, industrial production, and inflation readings have positively exceeded anticipations in Q2 2024. However, the labor market has been cooling, with firms continuing to face the challenge of increased interest rates. According to the report released by the firm in mid-August, the container traffic at the US ports increased to the highest level in 2 years, with shippers hedging against disruption and retailers gradually stacking up inventories to reach normal levels. The company anticipates annualized growth in imports across the latter half of 2024.
Manufacturing construction spending touched new heights, coming at $121.5 billion in May 2024, approximately double the pre-COVID-19 5-year average. While The South is collecting a significant share of this investment, the manufacturing growth has been driving additive demand for industrial space. Moving forward, evolving and tech-enabled trends, along with new players in e-commerce, should continue to drive demand.
Additionally, the company believes that consumer spending has been mixing in-store, online, and omnichannel behaviors. This is because well-established retailers are investing in all such options. The report highlighted that ~42% of e-comm orders previous year involved stores, demonstrating an increase from ~27% in 2015. New e-comm entrants- mainly social media platforms monetizing audiences throughout the world- continue to join the race. At the expected ~6.7% CAGR over the upcoming few years, e-comm growth should continue to fuel industrial demand. An expected 1.2 msf of logistics space is required to help every additional $1.0 billion in e-comm sales gains.
According to the CommercialEdge market report for September, the industrial sector rebalanced in 2024 and it continues to again grow at a healthy pace after witnessing softer demand earlier. Census Bureau figures demonstrate a 1.3% rise in e-commerce sales for Q2 2024 and 6.7% YoY growth, with the segment’s share of core retail sales touching the highest level since the peak of COVID-19. The industrial space is also getting the support from growing warehouse and storage sector, which added ~25,000 jobs so far this year after declining ~8.5% between May 2022 and December 2023. Finally, expectations about Amazon increasing its lease activity hold up well for the broader industrial sector.
Our methodology
To make a list of the 8 Most Undervalued Industrial Stocks to Buy According to Analysts, we used a Finviz screener to extract stocks from the relevant industry. Next, we chose the ones that are trading lower than the forward earnings multiple of 23.52x (since the broader market trades at ~23.52x, as per WSJ). Finally, we ranked the stocks according to their potential upside, as of October 8. We also mentioned the hedge fund sentiments around each stock, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Maximus, Inc. (NYSE:MMS)
Forward P/E as of October 8: 15.22x
Number of Hedge Fund Holders: 22
Average Upside Potential: 25.69%
Maximus, Inc. (NYSE:MMS) operates as a provider of government services in the US and internationally.
The recent contract wins for Maximus, Inc. (NYSE:MMS) include task orders and contracts with the IRS, TSA, FEMA, and the state of Pennsylvania totalling more than $596 million. The revenue for FY 2025 is expected to be similar to FY 2024, with a strong focus on maintaining an adjusted OI margin of at least 10%. Maximus, Inc. (NYSE:MMS) continues to invest in technology modernization and customer services in a bid to support long-term growth.
The company enjoys a healthy pipeline of opportunities and anticipates organic growth via base growth and new work awards. Maximus, Inc. (NYSE:MMS) remains optimistic about its ability to navigate policy changes and administration shifts post-election. It has raised its FY 2024 guidance, with revenues anticipated to be between $5.25 billion – $5.35 billion. Maximus, Inc. (NYSE:MMS)’s ability to secure and manage government contracts should continue to help its growth prospects in the near term.
Talking about the contract wins, the company secured a $70 million Blanket Purchase Agreement (BPA) with the Department of Energy and a task order on the Office of Personnel Management Customer Support Center BPA. Such strategic developments, together with its focus on IT modernization and operational efficiency, should drive future growth.
The shares of Maximus, Inc. (NYSE:MMS) have an average price target of $110.00, as per Wall Street. ClearBridge Investments, an investment management company, released its first quarter 2024 investor letter. Here is what the fund said:
“We exited a position in Maximus, Inc. (NYSE:MMS), in the industrials sector, which operates as a provider of government services in the U.S. and internationally. Given our concerns over difficult earnings comparisons expected in fiscal 2024 after the resumption of Medicaid determinations, disruption from a potential change in presidential administration, and new uncertainties over potential AI disruption to its services over the next 10 years, we made the decision to sell the position.”
Overall MMS ranks 5th among the most undervalued industrial stocks to buy according to analysts. While we acknowledge the potential of MMS as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than MMS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
