Most analysts upbeat about Quintiles

dranii@newsobserver.comJune 18, 2013 

The Quintiles analyst reviews are in – and they’re mostly positive.

On Tuesday 13 analysts initiated coverage of the world’s largest pharmaceutical services company, which went public last month. Of the analysts who weighed in on Quintiles’ stock, seven rated it favorably – either a “buy” or its equivalent, according to Bloomberg News. Four rated it “neutral” or “hold” and two rated it the equivalent of a “sell.”

Analyst John Kreger of William Blair & Co. rated the Durham-based company’s stock as “outperform.” His research report describes Quintiles as a “high-quality company” that will benefit from accelerated pharmaceutical industry spending on drug development plus the industry’s increasing reliance on outsourcing drug testing to companies such as Quintiles.

Kreger projects that revenue will rise 1.5 percent this year to $3.75 billion, then will jump 6.5 percent in 2014 and 7.8 percent in 2015. He forecast adjusted earnings per share will rise even faster – 10.9 percent in 2014 and 14.5 percent in 2015.

Quintiles is a contract research organization, or CRO, that helps pharmaceutical and biotechnology companies test experimental drugs. It also assists those companies with selling and marketing prescription medicines once they win regulatory approval. The company has 27,000 employees worldwide, including more than 2,000 in the Triangle.

Quintiles went public at $40 per share last month, and its shares rose 5 percent on the first day of trading, closing at $42.11. It actually was the company’s second initial public offering of stock. Founded in 1982, Quintiles was publicly traded from 1994 until 2003, when co-founder Dennis Gillings – then the company’s CEO and today its executive chairman – led a leveraged buyout that took the business private.

Quintiles shares closed Tuesday at $43.89, up 36 cents.

The advice to hold

David Windley, an analyst at Jefferies, noted that being the largest CRO is an advantage, allowing Quintiles to “undertake projects even its largest competitors are not equipped to handle, and command better pricing in some cases.” But he also noted that revenue growth has been slower than its competitors, a trend that is likely to continue.

He rates the stock a “hold.”

Windley cautions that competition for projects is heating up and exerting pressure on prices. Quintiles, he added, “expects this to persist for the foreseeable future and targets productivity enhancements to mitigate the impact.”

Analyst Eric Coldwell of Robert W. Baird & Co. also rates Quintiles a “hold.”

“Over a longer-term horizon, we expect solid returns for investors in Quintiles,” Coldwell noted in his report. “In the near-term, we see better relative performance elsewhere. Compared to peers, Quintiles’ 2013 outlook is quite modest. ... We expect and are modeling stronger performance in 2014.”

Alexander Draper, an analyst at Raymond James, has a “buy” rating on Quintiles. His research has convinced him that the larger CROs, including Quintiles, “continue to win more deals and strategic partnerships (with drug companies), and thus take share from the smaller CROs. ... We think that the larger CROs are differentiated by their large scope, scale, resources, financial stability and relationships in the industry.”

Ranii: 919-829-4877

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