ICON (ICLR) stock climbed 8.3 % this morning. According to our metrics, the company seems overvalued with mixed growth factors at today's prices.
ICON Public Limited Company, a clinical research organization, provides outsourced development and commercialization services in Ireland, rest of Europe, the United States, and internationally. The large-cap Healthcare company is based in Dublin, Ireland and has 40,500 full time employees.
ICLR Has a Higher P/E Ratio Than the Sector Average
Compared to the Healthcare sector's average of 13.21, ICON has a trailing twelve month price to earnings (P/E) ratio of 34.3 and an expected P/E ratio of 23.3. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $6.35 or forward earnings per share of $9.37.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since ICON's P/E ratio is higher than its sector average of 13.21, we can deduce that the market is overvaluing the company's earnings.
ICON Is Fairly Valued in Terms of Expected Growth
Another factor pointing to ICON's value is its PEG ratio of 1.01. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.
ICLR Has an Alarming P/B Ratio
The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.
Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since ICON's P/B ratio of 6.0 is higher than its sector average of 4.07, such a margin of safety does not exist for the stock.
ICLR Is Generating Cash
ICON has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 41.8%, compared to 42.2% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 42.6% and a coefficient of variability of 34.9%:
| Date Reported | Cash Flow from Operations ($ MM) | Capital expenditures ($ MM) | Free Cash Flow ($ MM) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 829 | -94 | 735 | 42.25 |
| 2020-12-31 | 568 | -51 | 517 | 42.85 |
| 2019-12-31 | 413 | -51 | 362 | n/a |
ICON's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing ICON's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
ICON's Gross Margins
| Date Reported | Revenue ($ MM) | Cost of Revenue ($ MM) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 5,481 | 3,973 | 27.52 | -5.82 |
| 2020-12-31 | 2,797 | 1,980 | 29.22 | -1.42 |
| 2019-12-31 | 2,806 | 1,974 | 29.64 | n/a |
ICON's Operating Margins
| Date Reported | Total Revenue ($ MM) | Operating Expenses ($ MM) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 5,481 | 900 | 11.09 | -24.25 |
| 2020-12-31 | 2,797 | 408 | 14.64 | -5.24 |
| 2019-12-31 | 2,806 | 398 | 15.45 | n/a |
ICON's cost of revenue is growing at a rate of 50.5% in contrast to 61.6% for operating expenses. Sales revenues, on the other hand, have experienced a 47.8% growth rate. As a result, the average gross margins growth is -3.6 and the average operating margins growth rate is -14.7, with coefficients of variability of 3.9% and 16.9% respectively.
ICON Benefits From Positive Market Signals
The market sentiment regarding ICON is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $295 to $215. ICLR is trading -16.01% away from its target price of $259.4. 1.6% of the company's shares are tied to short positions, and 99.3% of the shares are held by institutional investors.
| Holder | Shares | Date Reported | Percentage | Value |
|---|---|---|---|---|
| Massachusetts Financial Services Co. | 7,958,693 | 2022-06-29 | 10% | $1,724,648,773 |
| WCM Investment Management, LLC | 6,171,668 | 2022-09-29 | 8% | $1,134,229,145 |
| Wellington Management Group, LLP | 4,133,216 | 2022-06-29 | 5% | $895,667,907 |
| Boston Partners | 2,946,362 | 2022-06-29 | 4% | $638,476,645 |
| American Century Companies, Inc. | 2,736,805 | 2022-06-29 | 3% | $593,065,643 |
| Lazard Asset Management LLC | 2,508,155 | 2022-06-29 | 3% | $543,517,188 |
| FMR, LLC | 2,332,824 | 2022-06-29 | 3% | $505,522,960 |
| ClearBridge Investments, LLC | 2,273,281 | 2022-06-29 | 3% | $492,619,992 |
| Ninety One UK Ltd | 2,135,174 | 2022-06-29 | 3% | $462,692,205 |
| Comgest Global Investors S.A.S. | 1,841,706 | 2022-06-29 | 2% | $399,097,690 |
