Digital Transformation And Aging Trends Will Expand Government Service Demand

Key Takeaways

• Strategic focus on core regions, digital transformation, and operational innovation position Maximus for sustainable margin expansion and long-term above-consensus revenue growth.
  
• Strong demand for specialized, tech-enabled government services and public-private contracting signals multi-year earnings acceleration and increased market share.
  
• Accelerating automation, government cost-cutting, unpredictable contract flow, wage-related margin pressure, and intensifying competition threaten revenue growth, profitability, and Maximus's long-term market position.

Catalysts

Operates as a provider of government services worldwide.

• Analysts broadly agree that contract wins and extensions like with the CMS Contact Center Operations and VA Medical Disability Examination contracts provide revenue stability, but this may undersell upside-Maximus's proven track record and operational innovation position it to not just retain, but expand wallet share and secure outsized extensions, suggesting multi-year, above-consensus revenue growth and contract margin upside.
  
• The consensus recognizes divestitures in Australia and South Korea as a margin benefit, but the true catalyst is that this strategic refocusing allows management to aggressively deploy capital and expertise toward high-growth, high-margin contract opportunities in core regions, driving sustainable net margin expansion beyond analyst expectations.
  
• Maximus is rapidly scaling proprietary AI and machine learning solutions into contract delivery, already evidenced by improved process efficiency and volume capacity; this digital transformation is set to unlock material cost efficiencies and throughput that could structurally lift EBITDA margins over the next several years.
  
• With public sector clients increasingly seeking cost efficiency and agility amid demographic shifts and complex eligibility environments, Maximus's demonstrated leadership in hybrid public-private contracting, especially in expanding programs for aging populations and healthcare reform, should meaningfully accelerate long-term revenue growth.
  
• The growing pipeline of $41.2 billion-with 55 percent representing new work and a 25 percent sequential increase in proposals in preparation or submitted-reflects untapped demand for specialized, tech-enabled government services, offering powerful visibility into future multi-year earnings acceleration as bid activity converts to wins.

Maximus Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Maximus compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Maximus's revenue will grow by 2.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 5.6% today to 6.4% in 3 years time.
• The bullish analysts expect earnings to reach $371.4 million (and earnings per share of $6.52) by about July 2028, up from $300.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.7x on those 2028 earnings, up from 13.5x today. This future PE is lower than the current PE for the US Professional Services industry at 23.7x.
• Analysts expect the number of shares outstanding to decline by 6.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.25%, as per the Simply Wall St company report.

Maximus Future Earnings Per Share Growth

Risks

• The rapid investment in automation and AI within Maximus's own operations, as well as wider industry adoption, signals that clients may increasingly favor self-service or digital-first solutions, which could reduce reliance on traditional, labor-intensive services and diminish long-term revenue growth opportunities.
  
• Growing public and political focus on streamlining and reducing government expenditures creates ongoing pressure for greater efficiency, leading to client requests for pricing concessions and raising the risk of tighter contract terms, directly impacting both future revenues and net margins.
  
• Persistent delays and uncertainty in federal procurement cycles, especially within civilian agencies, expose Maximus to lumpy contract flow and extension-driven revenue volatility, risking unpredictable earnings and reduced top-line growth.
  
• Margin pressures from wage inflation are likely to continue, particularly as Maximus shifts staff to higher-value functions without a guarantee that technology investments can fully offset rising compensation expenses, threatening overall profitability and net margins.
  
• Increasing competition from tech-forward, large-scale BPO providers and potential legislative or administrative shifts toward "in-sourcing" by governments may compress pricing, erode market share, and shrink the addressable market for outsourced services, collectively pressuring future revenues and earnings.

Valuation

• The assumed bullish price target for Maximus is $116.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Maximus's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $116.0, and the most bearish reporting a price target of just $90.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $5.8 billion, earnings will come to $371.4 million, and it would be trading on a PE ratio of 17.7x, assuming you use a discount rate of 7.2%.
• Given the current share price of $71.64, the bullish analyst price target of $116.0 is 38.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.