Uncertainty Around Iqvia's Near-Term Earnings Path Is Clearing, Goldman Sachs Says In Upgrade

In a preview of the first-quarter results of contract research organizations,Goldman Sachs said the group remains attractive with a healthy fundamental backdrop and no material signs of a trend reversal in 2018. 

The firm also turned bullish on Iqvia Holdings Inc (NYSE: IQV).

The Analyst

Analyst Robert Jones upgraded shares of Iqvia from Neutral to Buy and nudged down the price target from $115 to $114.

The Thesis

CROs as a group have underperformed the S&P 500 Index year-to-date, dragged by fears of large-scale pharma M&A in the wake of corporate tax reform, Jones said in a Friday note. The CRO stock weakness is still overblown in Jones' view, as he said he projects only muted impacts to CROs.

"At the same time, the flow of public and private biotech funding remain well above historical averages (with private funding in particular at record levels as of 1Q18) and we see global pharma R&D budgets at a healthy mid-single digit clip despite some recent trial result missteps," the analyst said.

Although optimistic on the longer-term potential of Iqvia's unique combination of data assets and its clinical CRO offering, the analyst said he was previously sidelined due to the uncertainty around the Durham, North Carolina company's near-term earnings trajectory. 

The near-term stage is now cleared for a beat on conservative guidance in 2018, even without revenue synergies hitting the P&L, Jones said. 

Signs of Iqvia's "smarter CRO" moving the needle are compelling, although the Street is not assigning much value to it, the analyst said. 

The analyst said he is even less concerned about pharma M&A for Iqvia, as its CRO client base is more diversified than peers. The impact on the company's commercial business is likely negligible, even in a hypothetical mega-merger scenario, the analyst said. 

The Price Action

Iqvia shares have added about 22 percent over the past year. The equity was up 1.62 percent at the time of publication Friday.

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