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Parexel predicts 10% revenue growth for FY2015

By Fiona Barry , 25-Jun-2014

Parexel predicts 10% revenue growth for FY2015

Parexel has predicted ten per cent year-on-year revenue growth for FY2015 but has been more modest about its operating margins ahead of its Investor Day tomorrow.

The contract research organisation (CRO) predicted revenue of $2.1bn-$2.2bn for its financial year 2015, which begins on July 1, 2015. This implies growth of 9.3-10.9% on 2014, “slightly below the 10-12% longer-term range to which management has recently spoken,” said analysts Jefferies.

With guidance on both revenue and earnings per share (EPS) for FY15 tending to outstrip general predictions (consensus revenue for FY15 had been $2.1bn), analysts have predicted a modest jump in Parexel’s share price – 1-3%, according to Ross Muken of analyst group ISI.

Market analysts said they are waiting to learn the underlying assumptions for Parexel’s predicted ten per cent revenue growth during the company’s Investor Day tomorrow.

‘Conservatism’ in margin forecast

Parexel’s guidance implies a smaller operating margin than analysts had predicted and the CRO had hinted at, said Jefferies. “Our 2015 estimate included a 75 bps [basis point – the equivalent of 0.75%] increase in operating margin.

With revenue guidance slightly higher, the ASR [accelerated share repurchase] contribution slightly larger than we estimated, and the EPS midpoint in line with our estimate, the implied margin expansion is smaller than our 75 bps. Management has talked about 100-120 [bps] of expansion as a target.

Thus, management's colour around the conservatism in margin assumptions should be key to the stock's reaction.

2014 results

For FY2014, Parexel reiterated the guidance it gave in April, of $1.9bn-$1.9bn, and EPS of $2.13 - $2.17. It gave its non-GAAP (generally accepted accounting principles) EPS at $2.11 - $2.15 for the year, after adjusting for one-off costs including a stated $2.3m of legal settlements and acquisition-and integration-related charges.

These costs, it said, were partially offset by $100,000 gain from the revaluation of the contingent consideration liability of Heron, the consultancy it acquired in April 2013.

Contingent consideration earn-outs are provisions in merger and acquisition agreements which make a portion of the purchase price contingent on the acquired company reaching certain milestones.

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