Tuesday, November 14, 2017

A current AIM International Fund Holding: ICON Plc (ICLR) by: Brian Holland "A Strong Hold for ICON"

ICON Plc (ICLR, $112.83): “ICON Keeps Momentum after Strong Q3”
By: Brian Holland, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


• ICON Plc (NASDAQ: ICLR) is a contract research organization, which engages in the provision of outsourced development services to the pharmaceutical, biotechnology, and medical device industries.  The company operates in four geographical segments: Ireland, Rest of Europe, United States, and Rest of World.

• ICON’s acquisition of Mapi strengthens their existing commercialization and outcomes research business. The company continues to have a preference regarding capital deployment toward tuck-in M&A.

• Client Concentration continues to diversify with Pfizer declining to 16.6% of overall revenue.

• ICON posted a gross book-to-bill of 1.57x and a net book-to-bill of 1.32x.

Key points: ICON completed the acquisition of Mapi in the third quarter of 2017.  The deal was completed for $144.1 million.  Mapi is a leading patient centered health outcomes research and commercialization company.  The acquisition adds significant commercialization presence, analytics, and evidence generation and strategic regulatory expertise.  The acquisition enables ICON to access the Mapi Research Trust, the industries most subscribed library of Clinical Outcomes Assessments.  The acquisition of Mapi has led to a net revenue increase of 2.4% so far.  The company has substantial free cash flow to continue to seek attractive targets.

ICON has made an emphasis on diversifying client concentration for the company.  In the third quarter of 2016, Pfizer represented around 25.2% of the company’s net revenue.  However, in the third quarter of 2017, Pfizer accounted for only 16.6% of total revenue.  Revenue growth of 4.8% year over year was achieved in the quarter, with a 17% increase in non-Pfizer revenue.  The company expects Pfizer to account for around 18% of total revenue for the fiscal year and plans to reach 10-12% moving forward.

Finally, in the third quarter ICON posted a gross book-to-bill of 1.57x and a net book-to-bill of 1.32x.  The book-to-bill ratio is widely used in the CRO industry as a measure of demand for services.  A ratio above 1 means the company has backlog contracts or strong demand.  In the third quarter, Icon recorded business wins of $691 million, representing a 20.8% increase year over year.  Furthermore, company backlog was boosted by 8%.

What has the stock done lately?

ICON is currently trading at $120.47.  For the majority of the last 3 months, ICON has been trading around $105-$112.  However, on October 26, 2017 the stock jumped to $122.79.  The increase represented an 8.8% jump in pricing.  The increase was primarily due to a strong earnings report on that day.  The company reported EPS of $1.35, an increase of 13.4% from the third quarter in 2016 and $0.04 increase from last quarter.

Past Year Performance:

ICON has increased 57.10% in value over the past year.  The company has continued to perform strongly in the market, trading very closely to the company 52 week high.  The tremendous growth this year can be attributed to three impressive quarters and an EPS that has grown each quarter.

Source: FactSet

My Takeaway

ICON Plc has proven to be a great buy for shareholders in the past year.  The acquisition of Mapi should add a significant presence to ICON’s commercialization and improve analytics.  The company has successfully diversified their client concentration while continuing to increase revenue.  Finally, the company continues to post impressive book-to-bill numbers and business wins.  After a strong third quarter, ICON’s management believes the company will continue their success in the fourth quarter.  For these reasons, it is recommended that ICON Plc remain in the AIM International Equity fund for the time being.