Credit Suisse Says Premium Valuation In INC Research Is 'Warranted'

INC Research Holdings Inc (NASDAQ: INCR) shares have lost 14 percent since May 23. Credit Suisse’s Erin Wilson initiated coverage of the company with an Outperform rating and a price target of $51. The analyst believes the company is poised for industry-leading double-digit revenue and EPS growth.

The backdrop for contract research organizations, or CROs, is favorable, and INC Research’s leading revenue growth and profit profile appears sustainable, given its “competitive advantages in therapeutic focus; a growing, diversified customer base; expanding geographic presence; and capital deployment opportunities,” analyst Erin Wilson mentioned.

Therapeutic Alignment

“INCR distinguishes itself with its therapeutically-aligned delivery model, with 80% of Clinical Research Associates (CRAs) focused on a specific therapeutic area,” Wilson noted. He added that the company is targeting faster-growing categories, which has helped it generate total revenue growth of over 20 percent in constant currency terms in 2015, significantly outpacing the industry average of 6-8 percent.

INC Research has an industry-leading profit profile. The increased investments should allow the company to generate more profitable growth in 2017 and beyond. “Acquisitions may supplement near term growth as well,” the analyst wrote.

Valuation

INC Research’s shares have declined 26 percent from their April highs, versus a 1 percent decline in the S&P 500, and are trading 31 percent below their historical average. Wilson considers the shares as “attractive in light of its competitive positioning in a healthy CRO backdrop.”