We have written on IQV a couple of times before: in 2017 we wrote a full report, and an update in 2018, both times our conclusion was that it is a core holding. If you would like a deeper understanding of what IQV does, we would suggest you look at the 2017 report.
We continue to see IQV ($208) as a core holding, with ~5% upside to numbers, strong secular drivers and potential for some multiple expansion and low downside.
Estimate 20% upside to shares.
Our previous conclusions: widening moat, defensive business, potential for acceleration in the business, remains true in our opinion.
We believe the setting for growth for next few years is stronger than before.
Biopharma R&D budget growth is likely to remain robust and see increased outsourcing.
CRO consolidation due to increased tech intensity gives increased pricing power / scale benefits.
IQV continues to increase market share and is best placed among peers.
Pent-up demand is returning.
We expect the COVID related benefit to remain strong for a few years and drive earnings above guidance that expects a drop in Covid revenues to zero during Q2 2021.
Not enough is known about the consequences and nature of COVID, hence we expect Real World Evidence gathering will continue on an ongoing basis.
Increasing threats of variants means ongoing refinements needed in vaccines for a few years.
There are new vaccines/treatments that are being developed for variants of the virus;
The stock is good value, given that we expect the recent acceleration in underlying growth to sustain.
We expect IQV will easily beat its guidance for 2021 and estimate consensus estimates to rise by ~5% as COVID work comes in for H2 and 2022.
The acceleration in the underlying CRO business, evidenced by backlog will show up in revenues in 2022.
Backlog is still growing strongly with book/bill ~1.4x, giving us confidence on sustainability of increased underlying growth rates.
Valuation is not excessive
IQV is trading at ~15-16x 2022 EV/EBITDA in our upside scenario, close to its average over the last few years, yet the EPS and EBITDA growth outlook is better than before.
We believe that the re-rating of the broader market as well as better growth rates and prospects demands a better multiple for IQV.
Using a DCF we see a 20% upside at 8% cost of capital.
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