(By R. Chandrasekaran) Global contract research organization Icon
) is seen to benefit from the continued transfer of projects from Pfizer
) that could potentially drive the company's sales growth in the next two years.
The Ireland-based company struck a deal with Pfizer in May 2011 that allowed Pfizer to transfer projects to Icon from the fourth quarter. This is predicted to be extended during the next 18 – 24 months. However, the concern seems to be that Icon had ramped up personnel by 1,000 after the Pfizer deal resulting in disappointed earnings. The assumption is that it could affect its 2012 results.
However, with the outsourcing market for late-stage development stabilizing, there could be an increase in volume during the later part of 2012. Yet, measured margin improvement is likely to be seen in 2012. Though gross margin skid 4.55 percentage points in 2011 hurt by personnel ramp up following the Pfizer deal, S&P Capital IQ sees a 1.6 percentage points rebound on volume increase in the current year.
Similarly, operating margin, which narrowed 6.15 percentage points in 2011, is predicted to show 2.75 percent improvement on better leverage and improvement in its central laboratory and Phase I unit that broke even in Q1 for the first time after 2009 first quarter.
In an equity research note to clients, S&P Capital IQ analyst Jeffrey Loo commented, "We are keeping our target price of $30 and our 2012 and 2013 EPS estimates at $1.00 and $1.46, respectively. Q2 results confirmed our view that ICLR could execute on its plan to drive sales growth through strategic partnerships and benefit from operating leverage following the significant increase in personnel ahead of these partnership deals."
The analyst sees sales growing 16.1 percent at $1.098 billion for 2012 and 9.9 percent at $1.206 billion for 2013, while Street analysts' expects $1.1 billion and $1.22 billion respectively for the same period.
Meanwhile, S&P Capital IQ reiterated its Strong Buy rating on ICLR shares as the trailing one year, and Q2 book-to-bill were strong at 1.48 X and 1.35 X driving backlog to grow 21 percent in a year to $2.5 billion. The stock closed Monday's regular trading at $23.94.