INC Research Holdings (INCR): M&A Needed To Support Top Line Growth - Jefferies
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Jefferies analyst, David Windley, reiterated his Buy rating on shares of INC Research Holdings (NASDAQ: INCR) after the company's investor day. INCR's strategy continues to target penetration in Top 20 pharma which allows it to maintain an above sector growth rate of 10-12% which DOES include acquisitions.
Management outlined 4 initiatives to enhance margins: shift to 1 CTMS system, optimize Phase I clinic, increase facility utilization, and grow into Japan headcount investments. The analyst believes that if INCR is able to deliver these savings by YE18, they would total ~100 bps of incremental EBITDA margin. Management expects to "reinvest" these in customer acquisition (pricing) and billable headcount growth to mitigate over-utilization (aka overtime/higher turnover).
Management believes M&A is necessary to add services that large pharma wants as it evolves toward one-stop shopping. Investments in FSP work and late phase services could help revenue growth beat 10-12% but come with 200-300 bps lower margin profiles.
The price target goes to $55.00 (from $56.00).
Shares of INC Research Holdings closed at $45.38 yesterday.
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