Institutions have recently added 2.2 million shares of this healthcare data provider to their holdings. Both Jim Cramer and Motley Fool have recently had favorable reports on the company, and the shares just crossed above their 50-day moving average, a positive sign.
Quintiles Transnational Holdings Inc. (Q)
From Argus Weekly Staff Report
Our rating on Quintiles Transnational Holdings Inc. (Q) is BUY and our target price is $75. The company recently announced that it would pay $9 billion to acquire IMS Health, a pharmaceutical data provider. IMS will provide Quintiles with a trove of healthcare records that will help drug manufacturers to target appropriate patients for clinical trials.
We expect Quintiles to continue to benefit from solid organic sales growth and increasing margins, and look for share buybacks to boost EPS. Based on the company’s high book-to-bill ratio, large backlog, diversified clients and favorable industry trends, including growing R&D budgets at pharma companies, we forecast continued growth in 2016-2017.
Quintiles has a record of consistent growth. Quintiles reported 1Q16 operating earnings of $182 million, up 23% from the prior year. Adjusted EPS rose 24% to $0.89 and topped the consensus forecast of $0.86.
Over the past five years, the company has posted compound annual revenue growth of 7% and adjusted EBITDA and EPS growth of 10%.
The company has two primary segments: Product Development (76% of 1Q sales) and Integrated Healthcare Services (24%).
Based on our expectations that the rising backlog will lead to stronger revenue growth in 2016, we are boosting our 2016 EPS forecast to $3.79 from $3.76, implying 14% growth. We are optimistic about the IMS deal, but will wait for additional details before incorporating it into our 2017 forecast. For now, our 2017 estimate remains $4.20.
We have a positive view of the company’s revenue and earnings growth and margin discipline, and expect it to benefit from favorable industry fundamentals. In particular, Quintiles should continue to benefit from the increase in R&D outsourcing among cost-conscious pharmaceutical companies.
Total R&D spending was approximately $78 billion in 2014, and is growing 3%-4% per year; the number of new compounds in Phase I-III pipelines at the end of 2014 was 4,700, up from 4,600 at the end of 2013. But the outsourced slice of the R&D pie is growing at a faster 8%-9% rate, and penetration remains low at 37%. Our five-year earnings growth rate estimate is 12%, as Quintiles is well-positioned to take advantage of this trend.
We think that Q shares are attractively valued. Q shares trade at 18-times our 2016 EPS estimate, slightly below the average of 19 for peers. However, given the company’s industry leadership and earnings growth that remains in line with peers, we think a higher valuation is warranted. The forward P/E has ranged from 16 to 25 over the last five years, with an average of 21. Applying a relatively modest multiple of 20 to our 2016 EPS estimate, we obtain a value of approximately $75 per share, our target price.
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425- 7500, June 10, 2016