On Wednesday, Guggenheim maintained a Buy rating on shares of Medpace (NASDAQ:MEDP), but reduced the price target to $432 from the previous $464. The adjustment follows Medpace's second-quarter results, which showed a significant increase in cancellations. These cancellations exceeded double the average of the previous year's quarterly figures, overshadowing a 14% growth in bookings that surpassed expectations.
Medpace's bookings for the quarter would have beaten the projected growth rate of 12%, had it not been for the unusually high cancellation rate. Despite this setback, management has indicated that the overall macroeconomic environment continues to be robust and that Medpace's win rates are on the rise.
The stock has experienced a downturn, dropping approximately 18%, while the S&P 500 Index has remained relatively stable. Currently, Medpace's shares are trading at around 27 times Guggenheim's 2025 earnings per share estimate of $13.04. This valuation implies a two-year Price/Earnings to Growth (PEG) ratio of 1.3.
Guggenheim's analysis suggests that the market may be factoring in a potential earnings deceleration for Medpace in 2025. However, based on the company's second-quarter performance and the positive macroeconomic commentary, Guggenheim believes that flat growth projections for Medpace are reasonable. If their assessment is correct, Medpace's stock could trade closer to 33 times earnings, aligning with a PEG ratio of 1.6, which is consistent with its historical average.
With these considerations, Guggenheim sees approximately 21% potential upside to the newly set price target of $432, reaffirming their confidence in Medpace with a continued Buy recommendation.
In other recent news, Medpace Holdings (NASDAQ:MEDP), Inc. reported a 14.6% year-over-year increase in Q2 2024 revenue, amounting to $528.1 million. Despite a downturn in net new business awards entering backlog due to elevated project cancellations, the company has raised its 2024 earnings per share (EPS) guidance.
The updated full-year guidance anticipates revenues between $2.125 billion and $2.175 billion, with EBITDA expected to range from $430 million to $460 million. As of June 30, 2024, the ending backlog was approximately $2.9 billion, a 13.7% increase year-over-year, with about $1.585 billion of this backlog expected to convert to revenue over the next twelve months.
Request for proposals (RFPs) were up 16% sequentially and year-over-year, with an improved win rate from Q1. While elevated project cancellations have impacted net new business awards entering backlog, the company remains confident in its financial outlook, reflected in its raised 2024 EPS guidance.
InvestingPro Insights
Amid the adjustments to Medpace's (NASDAQ:MEDP) outlook and the recent volatility in its stock price, it is important for investors to consider the latest metrics and analysis. According to real-time data from InvestingPro, Medpace's market capitalization stands at $11.05 billion, with a P/E ratio of 32.84, reflecting a premium valuation in the market. Additionally, the company's revenue has grown by 21.36% over the last twelve months as of Q2 2024, indicating robust top-line expansion.
InvestingPro Tips highlight that Medpace is trading at a high earnings multiple and a high P/E ratio relative to near-term earnings growth. Despite experiencing a significant price drop over the last week, analysts predict the company will be profitable this year, and it has been profitable over the last twelve months. This suggests that while the stock may be facing short-term pressures, its long-term performance remains strong. Investors can explore these dynamics further, along with additional tips on Medpace, by visiting https://www.investing.com/pro/MEDP.
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