4 Pharmaceutical Services Stocks To Buy With Big Upside Potential

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The pharmaceutical industry is constantly under pressure for the high prices they charge for drugs, and many times they become the whipping boys for politicians seeking to gain favor with constituents bytaking on the big bad drug companies.

The reality is that the drug industry plans to fail nine times out of ten when trying to bring a new drug to market and with the fully burdened cost per drug approval at a staggering $2.6 billion, with 55% of that number coming from compound failures, the road to success is difficult and costly.

In a new research report from Jefferies, they focus in on pharmaceutical services stocks, which are the companies that provide outsourcing services to drug companies looking to get a product approved. With the stakes as high as they are, these companies are in big demand. Jefferies has four rated Buy and all are solid ideas for aggressive accounts with risk tolerance.

Icon
Based in Ireland, this top company is offering investors a nice entry point. Icon PLC (NASDAQ: ICLR) is a global contract research organization (CRO) providing clinical development services to pharmaceutical, biotechnology and medical device industries.

The company offers solutions, from compound selection to Phase I-IV clinical studies, across all major therapeutic classes and on a global basis with the goal of accelerating the development of drugs and devices that save lives and improve the quality of life.

First quarter sales grew 7% year over year, and earnings per shares for the quarter of $1.42 were in line with consensus. Revenue growth outside of the company’s top customer accelerated and the firms solid backlog metrics bode well for stronger core growth in the second half of 2018.

The Jefferies price target is posted at $150, and the Wall Street consensus target is set at $131.92. Shares closed above that level on Tuesday at $133.18.

PRA Health Sciences
This stock has traded sideways for much of 2018 and could be nearing a breakout level. PRA Health Sciences Inc. (NASDAQ: PRAH) is a fast-growing contract research organization (CRO) providing outsourced clinical development (i.e., Phase I-IV) services to the biotechnology and pharmaceutical industries.

The company offers traditional, project-based Phase I-IV services and is one of the pioneers in the embedded clinical research organizations engagement model also offering flexible functional service provider (FSP) solutions.

First quarter revenue/organic growth were +2% above estimates; adjusted earnings per share were also above consensus. Top management is bullish for the second quarter given pickup in request for proposals and potential large client opportunities.

The Jefferies price target is posted at $103, and the consensus target across Wall Street is $99. The stock closed trading on Tuesday at $91.72.

Syneos Health
This smaller cap player could offer investors the best overall upside potential of all of the Jefferies Buy-rated stocks. Syneos Health Inc. (NASDAQ: SYNH) focuses on Phase I to Phase IV clinical development services for the biopharmaceutical and medical device industries. The Company operates through two segments: Clinical Development Services and Phase I Services.

The Company’s Clinical Development Services segment offers a range of clinical development services, including full-service global studies along with ancillary services such as clinical monitoring, investigator recruitment, patient recruitment, data management, study reports to assist customers with their drug development process, quality assurance audits and specialized consulting services.

The Phase I Services segment focuses on clinical development services for Phase I trials, which include scientific exploratory medicine, first-in-human studies through proof-of-concept stages and support for Phase I studies in established compounds.

The Jefferies team notes that Syneos captured the change order that was deferred out of the first quarter. That will boost second quarter revenue by at least $7 million and bookings by much more.

The Jefferies team have a $55 price target and that competes with the consensus target of $50.46. The shares closed trading Tuesday at $44.50.

West Pharmaceutical Services
This below the radar company could offer a big upside for shareholders this year. West Pharmaceutical Services Inc. (NYSE: WST) is a leading manufacturer of components used for injectable drug delivery systems, including rubber stoppers and syringe plungers, and also offers contract manufacturing services to the healthcare and consumer products industry.

The company is currently augmenting its product portfolio by offering more proprietary products including prefilled syringes, advanced injection systems, and drug administration systems.

The analysts said this in a recent report:

In addition to the improved product mix, which should drive 50-70 basis points of margin expansion annually, we also expect gross margins to benefit from better manufacturing efficiency. We expect substantial free cash flow improvement over the next few years and believe weakness in shares (down 9% YTD) presents an opportunity.

The Jefferies price target is posted at $112, and that compares with the consensus, set at $95.71. The shares closed Tuesday at $98.37.

The pharmaceutical industry depends on these top companies to provides the services to get new products out of the pipeline and into the market. All are reasonably priced growth stocks that make good additions to long-term portfolios now.