The shares of this healthcare company are moving higher, with upgrades from SunTrust Robinson Humphrey and a ‘Strong Buy’ from Zack’s. Buy on pullbacks.
PRA Health Sciences Inc. (PRAH)
From Dividend Lab
PRA Health Sciences Inc. (PRAH) is a best-in-class global contract research organization (CRO) in the medical services industry. The company provides outsourcing services to biotechnology and pharmaceutical customers for clinical development services such as clinical trials, data management, drug development consulting, regulatory consulting and statistical analysis in the fields of gastroenterology, hematology, immunology, infectious diseases, neurology and oncology. PRA Health Sciences has over 90 offices across the world that cater to a global list of clients and can cover a diverse population for clinical trials. The company has collaborated on over 3,300 clinical trials and 100 drugs brought to market since 2000, of which 60 drugs received approval from the U.S. Food and Drug Administration (US FDA). In March 2016, as recognition for its excellence, PRA Health Sciences received the “Highly Commended” designation for Best Contract Research Organization by Vaccine Industry Excellence.
A key competitive advantage that differentiates PRA Health Sciences from its competitors is the company’s leadership team and its relentless focus on global growth and operational excellence, underscored by the industry recognition award in March 2016.
PRA Health Sciences reported 4Q15 results (for the three months ended December 31, 2015) with total revenue of $428.9 million, up 16% from $370.0 million in 4Q14. Service revenue increased 12% to $362.3 million, beating analysts’ estimates of $352.8 million by 3%. For the quarter, PRA Health Sciences reported net income of $28.5 million, or $0.45 per share, up 225% from the year ago period, and adjusted earnings of $37.5 million, or $0.59 per share, beating analysts’ estimates of $0.50 per share by 18%.
Net new business increased approximately 93% from $774.4 million in 2013 to $1.49 billion in 2014 and $1.70 billion in 2015. An expanding customer base helped drive revenue growth by 11% from $1.46 billion in 2014 to $1.61 billion in 2015.
Management also updated guidance for FY2016. The company now expects FY2016 revenue to come in at between $1.53 billion and $1.57 billion (representing constant currency growth of 11%-14%), with net income between $2.32 and $2.42 per share (growth of 16%-21%). Analysts forecast earnings of $2.38 per share for FY2016. For the year, PRA Health Sciences expects adjusted earnings in the range of $1.56-$1.66 per share. The company will release 1Q16 financial results on April 27, 2016, after market close. Analysts expect earnings growth of 18% for FY2016, the midpoint of management’s guidance of 16%-21%, leaving solid room for the company to again outperform estimates.
Additionally, the company’s global presence makes it a preferred provider (with disproportionately higher sales wins) as a CRO partner to drug developers as they struggle to meet increasingly stringent restriction from drug regulatory bodies across the world, as non-U.S. countries undertake their own health care reform initiatives. PRA Health Sciences has a strong presence in the United States and Canada, which jointly accounted for 61% of revenues in 2015.
And the company’s global presence allows it to tap into significant growth in the Asia-Pacific, Latin America and EU-Africa regions which, in the latest quarter, showed growth rates of 46%, 14% and 6%, respectively.
Since major health care reform in the United States in 2010, the pharmaceutical industry has faced immense pressure to deliver innovative products while improving margins. As a result, companies shut down or downsized internal clinical trial staff and turned to CROs for help.
Moreover, bullish and generous funding for biotech players (by venture capital, private and public players) has resulted in higher budgets for CRO initiatives, which continue to benefit PRA Health Sciences. Also, unlike other CROs, PRA Health Sciences focuses solely on Phase I to IV study management solutions, giving the company a differentiating and specialized competitive advantage.
PRA Health Sciences shares are up 7% year-to-date and up 75% over the last 12 months. The company’s stock has been somewhat volatile over the last six months, largely on heightened market volatility, but has maintained a strong upward trend, overall. Shares trading in a bullish manner, but could see near-term pullbacks which would represent ideal buying opportunities.
SunTrust Robinson Humphrey upgraded PRA Health Sciences from a Neutral rating to a Buy rating.
While PRA Health Sciences does not pay dividends, investors have realized solid returns through strong share price appreciation. Since going public at $18 per share on November 13, 2014, PRA Health Sciences is up 169%. Bullish catalysts and prudent, experienced management should drive shares higher over the long run, especially for investors that buy on pullbacks.
Todd Johnson, Dividend Lab, www.dividendlab.com, 505-514- 0036, April 18, 2016