PRA Health Sciences, Inc. (PRAH - Free Report) is well poised for growth on the back of strong international expansion, improving Contact Research Organization (CRO) industry and favorable biopharmaceutical industry dynamics. However, rising direct costs continue to remain a concern.
Shares of PRA Health Sciences have gained 16.9%, against the industry’s decline of 10.9% on a year-to-date basis. Meanwhile, the S&P 500 Index rallied of 23.4% in the same timeframe.
This company, with a market capitalization of $6.79 billion, is a renowned global CRO. The company provides outsourced clinical development services to biotechnology and pharmaceutical industries. The company’s earnings are anticipated to improve 16% in the next five years. Moreover, it has delivered a positive earnings surprise of 2.5% on average in the trailing-four quarters.
Let’s delve deeper and analyze the factors that substantiate why it's perfectly alright to hang onto this Zacks Rank #3 (Hold) stock.
What’s Deterring the Stock?
Rising direct costs continue to weigh on the company’s overall performance. In the third quarter, PRA Health’s direct costs shot up 4.8% year over year to $386.2 million. Per management, the increase in direct costs can primarily be attributed to a rise in labor-related costs at the Clinical Research segment.
Factors to Boost PRA Health
The CRO industry has been gaining traction of late on the back of worldwide increase in demand for outsourced clinical development solutions. Going by a CRO Market Size Projections report by Industry Standard Research (ISR), the size of the worldwide CRO market was approximately $32 billion in 2016 and is anticipated to hit $44 billion in 2021 at a CAGR of 7%.
International expansion has been and continues to be a key catalyst. This is because PRA Health is one of the largest CROs globally on the basis of revenues, focusing on executing clinical trials on a worldwide basis.
We note that, PRA Health’s revenues from international operations is growing fast (currently Europe, Africa, and Asia-Pacific region contributes more than 30% to total revenues).
The company continues to gain from large pharmaceutical companies, which contributed to the top line.
Moreover, solid 2019 outlook instills optimism in the stock. For 2019, PRA Health anticipates to achieve total revenues between $3.02 billion and $3.10 billion, suggesting growth of 5-8% on reported basis and 6-8% at constant currency.
Adjusted EPS for 2019 is expected between $5.07 and $5.12 (up from the previously guided range of $4.98-$5.08), indicating growth of 18% to 20% from 2018.
Which Way Are Estimates Headed?
For 2019, the Zacks Consensus Estimate for revenues is pegged at $3.06 billion, indicating an improvement of 9.5% from the year-ago period. For adjusted earnings per share, the same stands at $5.11, suggesting growth of 19.4% year-ago reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space are Conmed Corporation (CNMD - Free Report) , Cardinal Health, Inc. (CAH - Free Report) and DENTSPLY SIRONA Inc. (XRAY - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Conmed Corporation has a long-term earnings growth rate of 17%.
Cardinal Health has a long-term earnings growth rate of 6.2%.
DENTSPLY SIRONA has a long-term earnings growth rate of 11.6%.
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