On Oct 13, Zacks Investment Research upgraded contract research organization ICON Plc ICLR to a Zacks Rank #1 (Strong Buy). We believe that a positive 2015 outlook primarily drove the upgrade.
Why the Upgrade?
ICON reported a strong upside in earnings in the second quarter of 2015. Earnings of 95 cents per share beat the Zacks Consensus Estimate by a nickel and surged 48.4% year over year driven by considerable margin strength.
Encouraged by the robust performance, ICON raised its bottom-line projection for 2015 to a range of $3.90–$4.00 per share from the previous $3.60–$3.70.
We believe that recently signed partnerships with the likes of International Business Machines IBM and Cancer Genetics CGIX will help ICON meet this full-year earnings target.
The partnership with IBM will allow ICON to access Watson Health Cloud that stores records of 50 million patients, speeding up the selection process of prospective clinical trial patients. Access to Watson’s cognitive computing abilities coupled with ICON’s expertise as a global CRO will attract drug developers. This will in turn help ICON win new customers, in our view.
Meanwhile, the tie-up with Cancer Genetics will improve visibility of ICON’s laboratory services, which will help it to attract big companies that have strong spending capability on clinical research. This will again eventually expand ICON’s customer base.
Apart from partnerships, acquisitions are expected to drive growth for ICON. The takeover of the Niphix business (acquired from Aptiv) in Japan and the buyout of MediMedia Pharma solutions are key growth catalysts.
Additionally, new product launches like the Firecrest Patient portal and electronic informed consent solution will drive ICON’s overall results.
Estimate Revision
Analysts are reasonably confident about the company’s long-term prospects, as is evident from the upward estimate revisions. Over the last 90 days, the Zacks Consensus Estimate for earnings climbed 7.4% (27 cents) to $3.94 per share for full-year 2015 while the same for 2016 surged 15.2% (62 cents) to $4.69 per share.
Another Stock to Consider
One may also consider PRA Health Sciences PRAH which carries the same Zacks Rank as ICON.
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