On Tuesday, Barclays (LON:BARC) reaffirmed its Overweight rating on ICON plc shares (NASDAQ:ICLR), a $17.2 billion market cap clinical research organization with a P/E ratio of 23.05, maintaining a steadfast price target of $275.00. According to InvestingPro data, ICON has demonstrated strong profitability with a 29.6% gross margin in the last twelve months.
Barclays' analyst Luke Sergott addressed the prevalent bearish sentiment towards Clinical Research Organizations (CROs), particularly ICON, attributing it to weaker bookings in the second half of 2024 which could potentially lead to subdued growth and significant margin contraction in 2025.
Sergott noted that while the midpoint of ICON's 2025 revenue guidance aligns with Barclays' estimates of approximately 2% growth, the lower end of the guidance range fell short of expectations.
Sergott expressed that for the guidance's lower range to be accurate, the demand environment would have to deteriorate further, which, according to Barclays' checks, is not currently the case. He highlighted an uptick in Request for Proposals (RFPs) from biotech firms and a relative stability in demand from large pharmaceutical companies, barring the top two customers.
The analyst suggested that the guidance likely incorporates a conservative outlook, with possible margin contraction of 100 basis points at low single-digit core growth, and potentially more if growth declines further. Sergott pointed out that concerns about margin contraction have been central to the negative thesis on ICON, and the recent results do not dispel these worries.
Barclays anticipates ICON's shares may face pressure until more information is available regarding first-quarter bookings, which will indicate whether the company is on track to meet or exceed the midpoint of its guidance.
Sergott concluded that ICON's guidance is characteristic of the company, presenting a broad range of possible outcomes, with the potential for more precise forecasts or slight increases throughout the year as management's visibility improves.
InvestingPro analysis suggests the stock is currently undervalued, with additional insights and a comprehensive Pro Research Report available for subscribers looking to make informed investment decisions.
In other recent news, ICON plc, a leading healthcare services company, recently issued its financial guidance for 2025. The company projects revenue between $8.050 billion and $8.650 billion, and adjusted earnings per share (EPS) ranging from $13.00 to $15.00.
Despite challenges from its top two customers and an uneven recovery in the biotech sector, ICON anticipates mitigating these factors through strategic partnerships. JPMorgan maintained its Overweight rating and a $280.00 price target on ICON, while TD Cowen reaffirmed its Buy rating and a $285.00 price target.
Jefferies lowered ICON's price target to $275 but maintained its Buy rating, citing the company's advancements in strategic partnerships as positive factors. RBC Capital Markets retained its Outperform rating on ICON stock with a price target of $263.00. In addition, ICON announced the appointment of Barry Balfe as its new Chief Operating Officer.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.