The biotech sector is rife with hit-or-miss investments, so it’s critical that you’re very selective when choosing your next buy. One under-the-radar name that recently came across my screen is Icon Plc (NASDAQ:ICLR). This international global contract research organization (CRO) serves the healthcare and medical device industry by providing clinical research, clinical trials management, expertise in product enhancements and more.
The company has come a long way in the past 27 years, going from just five employees in 1990 to 12,300 in 38 countries today. During that time, ICLR has enjoyed consistent growth, with 2011 being the only down year for earnings over the past 15 years. This record was driven not just by the growth in pharmaceuticals, but by its excellent track record in safety and quality.
Management’s strategic acquisitions have played a significant role in the company’s growth. They have spent $501 million over the past five years, which is a relatively large amount for a company with total assets of $1.86 billion. The most notable acquisition is Clinical Research Management, which ICLR used to extend its presence in government-sponsored research last year. It also bought MediMedia Pharma Solutions in 2015 to enhance its scientific communication abilities and PMG Research, an integrated network of regional research sites in the United States.
In 2014, management grew its adaptive trail solutions by purchasing Aptiv Solutions. And in 2012, they expanded their Chinese presence by acquiring CRO BeijingWits.
The Strengths of ICLR Stock
Icon’s strong analytics capabilities are also important. I think evidence of the company’s broadening customer satisfaction is how it is growing revenues beyond its top five customers. Last year, the top five accounted for 45% of revenues, with Pfizer Inc. (NYSE:PFE) alone accounting for 26%. This year, management estimates the top five will be down to 35% with PFE at just 15%.
As is the case with the entire industry, growth is slowing due to biopharmaceutical research cooling. Still, ICLR expects revenues of $1.7-$1.75 billion this year (a 2%-5% gain) and earnings per share of $5-$5.20 (a 6%-10% gain). Demand remains strong across all large pharma customers, with good activity from mid-size and specialty companies.
Eventually, management expects biopharma to resume good growth, with consulting and services also contributing in the long term.
ICLR’s first-quarter earnings report this past April was solid, with EPS of $1.29 (versus $1.12 last year) coming in 2 cents higher than expectations. Sales were up 7.8%, better than the estimated 4.5% without the benefit of acquisitions.
ICLR, like other Contract Research Organizations (CROs), is benefitting from increased research from small- and mid-sized pharma and med-tech companies, which drove a book-to-bill value of 1.2 in the quarter. This will help Icon become less dependent on its top five customers and new business continues to grow.
This is now a critical time for ICLR, but it still trades at a meaningful discount to the market as a whole for a company that is expected to grow revenues in the 2%-5% range. However, CROs can be volatile, and the uncertainty of drug prices going forward could impact the amount of research done. While I like the company and see good upside potential, this is a risk worth considering before investing.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.