For the second time in a week, Goldman Sachs updated its Conviction Buy list, this time adding Iqvia Holdings Inc IQV 0.47%.
The Analyst
Goldman analyst Robert Jones reiterated his Buy rating for Iqvia and lowered his price target from $152 to $151.
The Thesis
The outlook for contract research organizations like Iqvia is strong heading into 2019.
Jones said Iqvia has the most upside in the CRO group due to its attractive valuation and its potential to beat consensus revenue estimates in coming quarters. He said Iqvia will hit an inflection point on revenue growth this year, and the stock currently trades at a discount to peers and its own multiple in terms of its two-year forward PEG ratio.
In addition, Jones said a reduction in secondary offerings should help stabilize the stock and pave the way for a decline in net leverage.
Jones says some CRO investors are concerned about the potential for a slowdown in biotech demand, are worried about the durability of CRO backlogs given large-scale pharma M&A and are troubled by the possibility of a global macro slowdown. However, he says Iqvia is well-positioned despite the concerns.
“IQV is the best positioned on exposure to customer concentration (a concern relating to Pharma M&A) and ‘emerging biotech’ vs CRO peers – 2 areas of investor concern for the group,” he wrote in the note.
Jones said public/private funding, R&D growth and FDA approvals, three drivers of demand growth for CROs, are all looking healthy at the moment.
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