The earnings forecasts for this pharma company were just increased by 14 analysts, and the stock has received two upgrades. Both SunTrust Robinson Humphrey an Jefferies changed their ratings for the stock to ‘Buy’.
ICON Public Limited Company (ICLR)
From Dow Theory Forecasts
It takes an estimated $2.6 billion and up to 15 years to develop and win regulatory approval for a new drug, according to the Tufts Center for the Study of Drug Development. With such huge amounts of money and time at risk without a guaranteed payoff—less than one in nine drugs that
enters clinical development makes it across the approval finish line—pharmaceutical firms constantly seek ways to reduce costs, improve success rates, and cut time to market.
Those goals mean big business for contract research organizations (CROs) that provide testing and research services. One firm aiming for a bigger portion of this $30 billion market is ICON Public Limited Company (ICLR). With annual revenues expected to exceed $1.7 billion this year, ICON is among the world’s ten largest CROs. On July 27, the firm reported better-than-consensus June quarter sales and profits and boosted guidance for 2017.
The stock popped on the strong earnings announcement but still trades at a 15% discount to the life sciences tools & services group. This recent addition to the Forecasts Buy and Long-Term Buy lists is being added to the Focus List.
ICON’s services support all stages of the clinical-development process—from compound selection to Phase I through Phase IV clinical studies. These services include trial management, consulting, staffing, laboratory services, and informatics.
ICON, based in Ireland, derives roughly 46% of its revenue from the U.S., 43% from Europe, and 11% from the rest of the world. The company’s top five customers accounted for 45% of its revenues in 2016, with 26% coming from Pfizer (PFE).
ICON is working to reduce its client concentration. In the second quarter of 2017, Pfizer accounted for 20% of total revenue, as revenue outside of Pfizer grew 17%. For the quarter, overall revenue increased 5% to $431 million, slightly outpacing the consensus of $430 million. Per-share profits rose 15% to $1.31, a penny ahead of estimates. The company has now beaten the consensus profit target in 13 of the last 14 quarters. ICON managed record net business wins of $563 million in the quarter and a healthy net book-to-bill of 1.31, meaning orders were 31% higher than billings. Business backlog grew 10% to $4.44 billion, equating to more than two years of revenue.
The July acquisition of Mapi Group should boost growth by enhancing capabilities in late-phase research, a segment of the market valued at around $10 billion. The addition of Mapi accounted for much of the company’s recent increase in 2017 sales and profit guidance.
Takeover appeal provides a kicker to total-return prospects. The CRO sector saw significant merger and acquisition activity in recent years, including the $5 billion proposed takeover of competitor Parexel (PRXL) announced in June. ICON’s market value of $5.8 billion is not too big to ward off takeover interest.
Richard Moroney, CFA, Dow Theory Forecasts, www.dowtheory.com, 800-233-5922, August 7, 2017