INC Research Holdings (INCR): M&A Needed To Support Top Line Growth - Jefferies

August 17, 2016 7:54 AM EDT
Get Alerts INCR Hot Sheet
Price: $50.10 -0.89%

Rating Summary:
    8 Buy, 4 Hold, 0 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 30 | Down: 30 | New: 23
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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).

For an analyst ratings summary and ratings history on INC Research Holdings click here. For more ratings news on INC Research Holdings click here.

Shares of INC Research Holdings closed at $45.38 yesterday.

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