ICON Plc (ICLR, $138.49): “ICON is no longer an icon as it
continues to fall”
By: Clarissa Vazquez, 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.
Summary:
• Icon Plc
(NYSE: ICLR) is a Global Contract Research Organization, that specializes in
the strategic development, management, and analysis of programs that support
Clinical development.
• Icon Plc generates
revenue from Ireland (41.1%), United States (34.5%), and the remaining from
China, Germany, and the United Kingdom. The company was founded in 1990 and is
headquartered in Dublin, Ireland.
• Icon Plc is at risk
of share loss into 2019. Its customers are starting to use data-driven patient
recruitment strategies. Which is leading to the expectation of ICLR’s
book-to-bill to underperform that of IQV (who is leading data-driven
competitor).
• Icon Plc reached its long-term margin target.
ICLR was in an expansion period for 6 years and saw a 200 bps of expansion per
year on average. ICLR is currently at the top of the industry’s margin range.
They will reach a plateau for the margin capabilities.
• ICLR’s long-term guidance assumed that there
will a be a stable backlog conversion. The conversion has been on a consistent
decline for 15 years, but it is expected that within the next five years this
trend will slow down.
• ICLR is currently in line with 2019 growth
estimates of 7-8%, which indicates that there will be stable-to-accelerating
growth. Wall Street expectations is for deceleration in the coming future.
• Icon Plc has grown
since being added to the AIM portfolio on April 12, 2013, for $30.66 and is now
currently trading at $138.49 showing a 351.70% increase from the initial
purchase price.
Key points:
Icon Plc released
Quarter 4 earnings call on February 21, 2019. Icon Plc reported a revenue
increase of 3.6% of organic growth [ml2] which was a $24 million increase. Icon
Plc continues to reaffirm guidance of revenue in the range of $2,560 - $2,640
million and earnings in the range of $5.98 - $6.12. Along with that, they
repurchased $72 million worth of shares in Q4 2018. Icon Plc full year
financial guidance is expected to be US dollar to Euro exchange rate of $1.16.
Along with an effective tax rate of circa 12%. ICLR has decided to build its
patient recruitment by investing in site networks such as buying PMG’s site
network (they will not be outright owning the sites themselves but rather it
will be more of an alliance). Also, ICLR uses data analytics from public
sources such as TriNet, EHR4CR, and EH2EDC (they currently do not own their own
data). ICLR believes this method will allow for more patients to enroll at each
site which is 37% of sites under-enrollment.
Icon Plc updated their
fiscal year 2019 guidance. Icon Plc’s low guidance for EPS in 2019 is expected
to be in a range of $6.69-$6.89 growth of 11.49% at the midpoint.
What has the stock done lately?
Over the past 12 weeks,
ICLR has seen a change of 3.50% trading at $133.80 on January 16, 2019, and
$138.49 on April 10, 2019. However, the company released Q4 earnings in February
and upon doing so, the stock declined 10.81% from $142.15 on February 21st to
$128.28 on March 8th.
Past Year Performance:
ICLR has a 52 Week H/L
of $153.75- $116.09. They were trading as high as $153.75 in September of 2018
and as low as $116.09 at the beginning of April, representing a change of 32.4%.
As stated above, the company has since seen an increase in price throughout the
last year, but now is in the mid-range from where the stock price has been in
the past. Overall, Icon Plc is up 19.30% YoY as they were trading at $116.09 on
April 10, 2018, and are now currently priced at $133.80.
Source: FactSet
My Takeaway:
In terms of stock
price, ICLR is facing some issues on gaining margins in the coming future and
is starting to see a decline in the stock price. Also, management is not able
to deliver future growth compared to before. Looking forward, ICLR will be
staying constant but will not be seeing the extreme growth opportunities that
they have experienced before. ICLR’s CEO, Steve Cutler, stated that being in
this line of business you must “… be aware of potential threats… along with
potential opportunities”. The Biotech industry is a huge distributor in their
field currently and they must learn to adapt to this new revolution quickly or
they will be behind compared to their competitors. As of right now, they have
not done anything to show that they are working with the “potential
opportunities”.
