$11.59
$53.96
bear $11.59
base $32.70
bull $53.96
margin of safety $19.00
market price* $27.38
Pediatrix Medical Group (formerly MEDNAX) employs neonatologists, maternal-fetal medicine specialists and other pediatric subspecialists who staff neonatal intensive care units and high-risk obstetric services under contracts with hospitals, mostly in the South and West: Texas alone produces about 32% of revenue and the five largest states (Texas, Florida, Georgia, California, Washington) about 64%. It bills patients' insurers for the care its doctors provide, and hospitals add administrative fees. Government programs, principally state Medicaid, pay about a quarter of revenue at rates well below commercial insurers. The company has been rebuilt over the last five years. It sold American Anesthesiology in 2021 and its radiology business (vRad) in 2022, and in 2024-2025 exited office-based pediatric practices and its primary and urgent-care line. Revenue fell to $1.91 billion in 2025 from $2.01 billion in 2024 because of those exits, but revenue at continuing units rose 6.2%, almost all from better collections, higher patient acuity in neonatology, a better payor mix and higher hospital administrative fees rather than more patients (volume added only 0.5%). Between 2019 and 2024 the company wrote off roughly $1.75 billion of goodwill and other assets, largely tied to practices it bought and later sold or closed. How we measured earnings. We start from operating cash flow, remove swings in working capital, subtract stock compensation as a real cost and subtract the capital spending needed to keep the business running (capital needs are small, about $18-33 million a year). Non-cash write-downs and amortization are therefore not charged against earnings; the acquisition history instead shows up in the bear case. Because the company carries debt, we value the business before interest and then subtract what it owes. On that basis the business produced about $146 million in 2023, $125 million in 2024 and $227 million in 2025. We anchor on the 2023-2025 period because earlier years describe a much larger, different company, and use roughly $146-150 million a year (about $1.80 per share) as the earning power of the business today. We do not adopt 2025's $227 million as the normal level yet: it was the first clean year after the restructuring, helped by a one-time collections push and lower costs from closed practices, and the first half of 2026 shows operating income of $98.6 million against $92.0 million a year earlier, steady but not a step-change. One more point: much of the 2025 tax expense was non-cash, because the company is using $355.6 million of tax loss carryforwards; that cash benefit is real but will run out within a few years. What it owes. At the end of 2025 the company had $400 million of 5.375% senior notes due 2030 and about $197 million left on a bank term loan maturing February 2027, with an undrawn $450 million revolving credit line. Cash was $289 million at June 30, 2026 after $64 million of share repurchases in the first half. Treating about $50 million of cash as needed to run the business, net debt is roughly $350 million. The 2027 bank maturity is the near-term item to watch; with debt at under two times cash earnings and interest of about $34 million covered several times over, we expect it to be refinanced, and the notes carry a coupon close enough to market that we make no adjustment for their cost. Base case. Earnings grow at about 2% a year, in line with the contracted hospital fee escalators and the acuity-driven pricing the company has demonstrated at existing units, with no credit for new hospital contracts or acquisitions. Births in the U.S. are flat to slightly declining, so we credit no volume growth. From 2028 we deduct about $10 million a year for the Medicaid changes in the July 2025 federal budget law (the One Big Beautiful Bill Act), which the Congressional Budget Office estimates will cut federal Medicaid spending by $1 trillion through eligibility checks and work requirements; mothers and newborns are partly protected, so we model a modest drag rather than a collapse. After year ten we assume earnings hold roughly steady with inflation-like 1% growth, because neonatal intensive care is a necessity service and the company's hospital relationships, some running for decades, have survived every downturn of the past 30 years. The business is worth about $3.03 billion; less $350 million of net debt, that is about $32.70 per share. Bear case. We combine three things that have actually happened to this company or its industry. First, a volume and collections shock like 2020-2021, when COVID disruption and transition costs cut cash earnings by a third or more; we model a one-year 35% drop. Second, the full Medicaid cut lands: with about a quarter of revenue from government payors, an 8% cut in that revenue removes roughly $35 million of annual earnings permanently. Third, continued pressure on specialist pay, which the company already cites as rising compensation at existing units, holds earnings flat in dollars for the decade, and the company repeats its acquisition habit once, losing about $200 million on a purchase as it did several times between 2019 and 2024. Beyond year ten earnings shrink 2% a year. The business is worth about $1.30 billion; less $350 million of net debt, about $11.60 per share. Even in this case annual cash earnings of about $90-100 million cover interest of about $34 million comfortably, so the debt does not threaten the equity. Bull case. The post-restructuring business proves to be the 2025 business rather than the 2023-2024 one: earnings start near $165 million and grow about 4% a year through continued acuity and payor-mix gains and hospital fee increases, with buybacks shrinking the share count. Beyond year ten growth slows to 2%. The business is worth about $4.78 billion; less net debt, about $54 per share. Margin of safety price. We are reasonably confident about the earnings level: the business is a necessity service, capital needs are tiny, and the three years since the restructuring bracket a narrow range once write-downs are set aside, though 2024 was depressed by restructuring costs and 2025 helped by one-offs. The worst plausible outcome is a deep, sustained cut in state Medicaid rates in Texas and Florida combined with a loss of several large hospital contracts, since a third of revenue comes from one state; the business would survive because its debt is moderate and it can shrink costs as contracts end, but shareholders could see value fall into the low teens. The things we are most likely to be wrong about are how hard the Medicaid changes hit and whether 2025's improved collections hold; if both go the wrong way, the shares are worth roughly $15-20. The company pays no dividend, so the return depends on the gap between price and value closing, helped by share repurchases of about 4% of shares a year. At $19 a share, the price is roughly ten times today's normalized earnings after interest; from that price the bear case implies a modest loss over time, while the base case closes a gap of about 70%, which over three to four years implies a return of about 20% a year. Above about $19 the outcome leans too heavily on the base case holding. Our margin of safety price is $19.00. Since our previous analysis a month ago, nothing in the business has changed materially; the first half of 2026 showed operating income up about 7% and $64 million of repurchases. Our earlier figures used a different treatment of debt and are not directly comparable.