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PAREXEL International Corporation Guidance Increased Due to Better Operating Performance and Small Acquisition

• On Thursday morning, December 27, Parexel announced the acquisition of Liquent, Inc., a provider of regulatory software solutions, for $72 million. The acquisition is expected to contribute to revenue growth in the second half, but will be dilutive to EPS in fiscal 2013. In addition, thanks to better operating performance and the recent acquisition, the company is increasing guidance for fiscal 2013 by $35 million‐$45 million on the top line, but up only slightly at the midpoint of the revised (and narrowed) EPS range of $1.36 to $1.43 (up 24%‐31%). Though commentary regarding operating performance was encouraging, it appears that decision‐making timelines at sponsors have slowed. As a result, bookings for the fiscal second quarter are expected to be soft as RFPs have slipped into the third quarter. While we are pleased with the operating performance, the commentary regarding slower decision making creates uncertainty and may weigh on CRO stocks until the next data point, particularly given relatively high multiples for the group at the moment. Given the guidance change, we are increasing our fiscal 2013 EPS estimate by a penny to $1.40 (up 28%) though our calendar 2013 estimate remains unchanged at $1.63 (up 27%); we maintain our Outperform rating.

• More important than the acquisition, which is in line with the company’s strategy to broaden its technology platform, is the increase to guidance, in our view. The company expects fiscal second‐quarter revenues to be between $415 million and
$420 million (up $10 million‐$15 million from previous guidance) and full‐year revenues of $1.675 billion to $1.695 billion (up $35 million‐$45 million) for the year. This is well above our previous estimate and the consensus for the year. Roughly one‐half of the revenue increase is related to the acquisition ($17 million‐$23 million in the second half of the year) with the remainder coming from better operating performance. We do not believe foreign exchange movements are responsible for a significant portion of the change since major currencies have moved in opposite directions (thus, currency movements will likely have a netting effect). Though
details were scant, it seems that project performance timelines have come in ahead of expectations because recent new hires have come up the learning curve quicker than
expected. On the bottom line, the stronger revenue has translated into a revised guidance range of $1.36 to $1.43, slightly narrower than the previous range of $1.34
to $1.44 as the operational improvements are offset by dilution from Liquent

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