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CROs are some of the best opportunities within the healthcare sector.
Comps valuation indicates Parexel as a clear winner.
DCF valuation shows the company is fairly valued.
TA defines $45 as the best entry point.
In my , I talked about the 3 major trends expected to affect the near future in the healthcare sector. In this article, I will focus on the second of those trends.There is, among all the major players in the biopharma industry, the increasing need to react to the ever more present context of the raising healthcare costs. To develop a drug can take 10 to 12 years, and the costs of doing so may end up being in the vicinity of 1 billion dollars (depending of the type of drug and pathology). It's widely known that of all the stages in drug development, the clinical trials stage is the most heavy one in financial terms. Because of that, over the last decade we've been witnessing the emergence of a particular type of institutions that are specialized in certain stages of the drug development process. Among them, a group of companies called Contract Research Organizations (CROs) aim to provide research support to biotech, pharma and medical devices companies, ultimately allowing them to save important financial, human and industrial resources. This group of companies provide such services as preclinical and clinical research, commercialization and even pharmacovigilance surveillance.A 2013
reported that the pharmaceutical contract research and manufacturing services (PCRAMS) market is expected to grow above 13% until 2017, which contrasts with the more humble growth rate expected to happen within the global pharmaceutical market. Therefore, it's only normal to look at CROs as some of the big winners of the future biopharma market tendencies. Let's analyze some of them.- Comparables analysisThere are hundreds of CROs competing for market share, however I've chosen 5 of the most important ones that are traded in the North American stock markets - Charles River Labs (NYSE:), Covance (NYSE:), Parexel (NASDAQ:), Icon (NASDAQ:) and Quintiles (NYSE:). data by At a first glance, all 5 companies trade at a very close multiple, with the exception of Charles River, which seems clearly &cheaper& than the rest. But, as we know, P/E ratios forget to show the impact of important issues like growth and debt, giving us a very narrow view on a company's real value. Let's take a look at growth.Looking at the last 5 years revenue growth, there is a clear difference between the rates that Icon and Parexel managed to achieve, in contrast with Charles River, that just before looked cheap in the P/E analysis. Seems to be a clear case where a lower P/E is related to diminished expectations surrounding the company's future, and not so much the supposed &cheapness& of it.Comparing price with growth makes it even more obvious:One final ratio, which I consider vital as a checkpoint tool in healthcare stock analysis, is the EV/Revenue ratio. This ratio considers the debt values, which can vary considerably between companies, as well as revenue and company size differences. Looking at this ratio one can see that Parexel is trading at lower multiple, of about 1.52X. The average value of the analyzed companies is of ~1.92X.One final ratio which I consider vital as a checkpoint tool in healthcare stock analysis is the EV/Revenue ratio. This ratio considers the debt values, which can vary considerably between companies, as well as revenue and company size differences. Looking at this ratio one can see that Parexel is trading at lower multiple, of about 1.52X. The average value of the analyzed companies is of ~1.92X.After all these ratios, a clear winner seems to standout, managing to have above average revenue growth rates and a price level, which even so is not the highest in the industry. However, let's take a look at the real value of Parexel, and see if at the current stock price level, it can be considered a good investment.- The companyParexel is amongst the top companies in the industry, with a current market cap of ~3.2B. Its activity revolves around 3 different areas:Clinical Research Services, which brings about 75%Parexel Consulting, with 11%;Parexel Informatics, which provides tech solutions to clinical development, and equates to 14% of current revenue.One thing that is noticeable is that EPS is growing extremely fast, at rates several times higher than revenues. An analysis of the reason behind this difference seems to point out to improved operational margins, which have risen nearly 50% over the last three years. Even so, it's remarkable that over the last 5 years Parexel managed to improve its revenues at a 14% pace, which is twice the industry standard.(click to enlarge)Besides this, Parexel announced last June that it was going to implement a share repurchase program of $150M. Over the last fewer years, total shares outstanding have been diminishing from nearly 60 million to the current level of 56.88M. This has been helping in the higher EPS growth pace.- DCF analysisFor Parexel's DCF analysis, I considered the following parameters:Considering a 5-year CAGR rate of 11.41%, we end up with a price per share valuation of $55.2. The company trades currently above $56, which is basically at the model's per share valuation. In this model is also considered a 16% revenue increase due to reimbursements granted.Enterprise Value, EV$3,138.29Debt$297.28Cash$298.66Value of Equity (VE)$3,139.67Number of shares56.88MPrice per share$55.20In a recent shareholder presentation Paraxel CFO defined the 10-12% revenue growth range as the company's long-term target. Applying this range to our valuation model gives us a price range between $51.8 and $56.6.- TA analysis(click to enlarge)Stock more than doubled in the last 2 years.The last two big price corrections were of 25.5% on average.If a 20% correction happens, Parexel's stock may trade around the $45 barrier.Price is near the upper part of the rising wedge and about to enter overbought territory.However, any break above the $57/$58 will take the stock to new ground of all time highs.- ConclusionParexel has positioned itself as one of the most interesting investment cases in the CRO industry. The company is growing at a faster pace than the industry, as a solid balance sheet and keeps delivering what it has promised.The main problem seems to be the valuation. The company seems to be fairly priced by the market, trading at the near exact intrinsic value. It's my belief that sooner than later a correction of the overall market is due to happen, and if history is to repeat itself, we may soon see a very interesting entry point. TA shows that a good entering price would be around the $45 value. However, any time a company trades in or near all time highs, it becomes very hard to predict where the next resistance will be. The 20%-25% correction swings seem to predict that the new resistance may be around $70.Time to be attentive to any breakout, even if I would personally prefer to wait for any correction to enter at a safer price level.Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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Share this article with a colleagueSome Thoughts on Building a Successful Marriage - The Simple Dollar
Last updated August 14, 2014
From my perspective, once you enter into the realm of marriage, building and maintaining a successful marriage is actually a big part of personal and financial success.
A solid marriage not only results in people sharing resources together, but a marriage also provides a lot of emotional support, cheerleading, and encouragement to succeed.
In the , I answered a question about marriage from a reader named Sally: You and your wife seem to have a very strong marriage. Can you give me some tips on how to keep my marriage strong? What do you do to keep it that way?
After I posted the question and my response (which I quoted below), I received a small flood of emails from readers telling me about their troubled marriage at length and asking me for more suggestions along these lines, something that I was happy to oblige in the first email, but by the time the twentieth or so arrived, I realized that this would make a better standalone post than simply reiterating the same ideas in a long string of emails.
First, a general note: my belief is that a successful marriage is built one moment at a time.
From what I’ve learned, a marriage is like a stone wall: it’s a mix of big things and little things, all assembled together to form something strong.
Sure, there are a lot of big rocks in that wall (the big moments in your marriage, like your wedding day or some other big, key moment), but those rocks don’t fit together without a lot of little rocks to fill in the gaps and make them strong.
Most marriages seem to have little problem with their big moments.
It’s easy to think back and think of big, happy moments in the marriage.
I tend to believe that most marriages fail because of the small moments.
Our individual lives get so busy that we fail to spend the time and effort to put those little stones in place, and when a bit of pressure is applied, the wall falls apart easily.
On the other hand, when the little stones are there to fill in the gaps, the wall becomes strong and able to withstand anything that comes along.
I also believe that the little things are hard.
Often, it’s not a matter of desire – almost all of us genuinely want to make our marriages work and work well.
The challenge for many is that we get wrapped up in the complexity of our own lives.
Others simply have difficulty expressing or showing what we feel.
What follows are twelve little things I do quite regularly to put those little pieces into my marriage.
Please, use as many of these as seem reasonable.
The first five are quoted from my response to the original question in the mailbag.
I tell my wife I love her every single day. I usually do it in the morning before she leaves the bedroom, and on weekdays I’ll also tell her when I see her in the evening for the first time. I usually couple it with a kiss. It’s so simple, but it’s a constant reminder of the fact that I do love her, no matter what.
I ask about her day, listen, and ask follow up questions.
I do this not only so I can keep tabs on her professional life, but also to give her a great chance to vent about her situation. Everyone needs to talk about themselves sometimes to someone who is interested – I try to provide that for her as often as I can.
I try to surprise her on a regular basis.
I’ll spend an hour preparing a really excellent supper when she doesn’t expect it. I’ll spontaneously give the kids a bath when she’s comfortable on the couch under a blanket, even if it’s her turn. Doing these little unexpected things not only shows her I care, but also often compels her to do similar things for me.
I hold her hand.
I do this all the time, whenever it crosses my mind and seems appropriate. I just hold her hand gently while we’re talking or we’re riding in the car or we’re waiting for an appointment or we’re sitting on the couch in the evenings.
I talk about EVERYTHING with her and let her determine what’s interesting.
If something is concerning me, I don’t hide it from her. I tell her about it. Most of the time she’s interested and we’ll discuss it – sometimes she’s not and I let it drop (this is key – if she’s not into the topic, I don’t push it). Either way, though, she gets the message that I’m making an effort to share and be open.
I work on building a positive relationship with her family.
Whenever I visit or see anyone in her family, I make a special effort to try to establish or build upon a strong relationship with them.
This accomplishes several things: it makes her more at ease in a family situation, it helps me to build stronger ties with people that are important to her, and it helps me to understand the influences that were around her as she grew up.
I send her messages during the day.
About once a week, during a time where my wife is really present in my thoughts, I send her a little simple note by email.
All it says is something along the lines of “I was thinking about you just now.
I can’t wait until I see you this evening.”
It’s just a very simple way of letting her know she’s on my mind and in my heart.
I put careful thought into gifts I give her.
Sure, it’s easy to just run out and get a generic gift to cover yourself during an anniversary or a birthday.
However, a gift with some real thought behind it means substantially more than an obviously off-the-cuff gift.
I encourage her to follow her passions and interests, even if they don’t inspire or interest me.
If my wife chooses to spend significant time on a project, it’s obviously something that’s important to her.
That doesn’t imply at all that it has to be important to me.
If she’s involved in her own project, I give her positive encouragement and then work on my own interests instead of saying things like “that seems like a waste of time.”
If she needs me, I willingly contribute to those passions.
If something genuinely excites her and she wants me to experience it, I willingly involve myself in whatever it may be: a particular type of art, a craft project, a yard project, whatever.
Even if I don’t enjoy it, I do have the opportunity to learn more about my wife and what she’s passionate about, which means that my understanding of her grows.
I look for opportunities to build mutual friendships.
The idea that there is a group of people that are “my” friends and another group that is “her” friends can be a big dividing factor between us.
Instead, I often focus on building friendships and relationships that we share with others so that something of a community of friendship and love grows up around us.
I hold her every night, even if it’s just for a moment.
I might be completely exhausted when I go to bed in the evening, but I take a moment to move close to her, put my arm around her, and hold her close, even if it’s just for a minute or so.
That moment of physical contact to end the day is a simple sign of love.
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What a wonderful post.
I sometimes struggle with the topics you usually talk about but this one was great.
Not only have I gotten myself into
deep debt but I am a widow to boot(only 54.)
Thanks for giving me hope.
Become a subscriber of The Simple Dollar and get a free copy of Trent's e-book today plus exclusive updates.Im not normal but seen as you're reading this carry on. Follow me if you havent already. Remember my face. DM me for a chat love speaking to new people :)
i feel so sorry for you, you get so much shit and abuse, all i want to do is just come give you a massive cuddle. youre such a sweet guy and so lovely.. please keep your chin up beautiful because you are better than these anon abusers.. x
thank you x