Analysts' Choice: ICON Shares Worth A Trial

8/7/2017


  Recent Price
$106
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
21
  Shares (millions)
55
  Long-Term Debt as % of Capital
27%
  52-Week Price Range
$109.32 - $73.76

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 ($106; 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.

Corporate profile

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 ($33; 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.

Conclusion

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 ($87; PRXL) announced in June. ICON’s market value of $5.8 billion is not too big to ward off takeover interest.

You can obtain an annual report for ICON PLC at South County Business Park, Leopardstown, Dublin 18, Ireland, (888) 381-7923, www.iconplc.com.

ICON
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '17
1.31
vs.
1.14
5%
100.86
-
76.46
20 - 15
Mar '17
1.29
vs.
1.12
8%
88.90
-
74.30
19 - 16
Dec '16
1.33
vs.
1.11
8%
85.74
-
73.76
19 - 16
Sep '16
1.19
vs.
1.02
6%
79.61
-
69.05
18 - 16
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2016
1.67
4.77
0.00
85.74
-
62.31
18 - 13
2015
1.57
3.98
0.00
84.14
-
50.91
21 - 13
2014
1.50
2.87
0.00
59.81
-
35.33
21 - 12
2013
1.34
1.77
0.00
44.23
-
26.70
25 - 15
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
95
93
49
96
69
99
90

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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