Analysts offer mostly positive outlook on PRA Health Sciences

09-Dec-2014 - Last updated on 09-Dec-2014 at 08:35 GMT

A number of analysts recently initiated coverage on CRO PRA Health Sciences, with most predicting that the company’s recent IPO will result in a steadily growing stock price.

Analysts from UBS, Jefferies and Credit Suisse initiated either “Buy” or “Outperform” ratings for the company’s stock, which hasn’t seen the kind of boost others in the market, such as Quintiles, have seen. Target prices were in the realm of $26, which would be a more than $4 premium on today’s share price.

Analysts highlighted the favorable CRO market as one of the reasons to invest in the company, especially as PRA is now able to compete with their top peers, following the merger with RPS.

Citi analyst Garen Sarafian, one of the few analysts who took a more lukewarm view on PRA, told investors: “While we favor PRA’s clinical focus & believe global CROs will benefit disproportionately from macro trends including our proprietary analysis of global drug trial starts, our relative view of valuations in the CRO subsector and PRA’s ~20% price appreciation post-IPO keep us on the sidelines.”

Sarafian added that PRA will focus its capital deployment over the next few years on reducing debt, which could provide significant momentum to EPS (earnings per share) growth over the next two or three years.

UBS also expressed optimism that because PRA doesn’t have a high concentration of strategic partnerships driving its bottom line, the company might be prone to less risk than some of its peers.

“We believe investors in the CRO sector may be better served to focus on companies with less customer concentration risk to hopefully reduce the potential for major swings in both quarterly bookings and sales. PRA seems to fit this bill with no customer accounting for more than 8% of sales (lowest in the industry),” UBS said in its note to investors.

Credit Suisse added that there seem to be a number of positive developments with PRA that are worth investing in, including the fact that the CRO industry is a “less-risky way to invest in biotech” while capital deployment & deleveraging could accelerate earnings growth.