Why Does ICON Public (ICLR) Have a Good Analyst Rating?

By Kim Brooks • Sunday, January 19 10:13 • Permanent Link

Most analysts love ICON Public, which has an average rating of buy. But there's reason to believe the stock may be overvalued at today's price of $198.11 per share. Let's look at the fundamentals ourselves and see if we reach a different conclusion than the analyst community.

ICON Public has a P/E ratio of 22.0 based on its 12 month trailing earnings per share of $8.99. Considering its future earnings estimates of $15.07 per share, the stock's forward P/E ratio is 13.1. In comparison, the average P/E ratio of the Health Care sector is 26.07 and the average P/E ratio of the S&P 500 is 29.3.

We can also compare the ratio of ICON Public's market price to its book value, which gives us the price to book, or P/B ratio. A company's book value refers to its present equity value -- or what is left over when we subtract its liabilities from its assets. ICLR has a P/B ratio of 1.67, with any figure close to or below one indicating a potentially undervalued company.

A comparison of the share price versus company earnings and book value should be balanced by an analysis of the company's ability to pay its liabilities. One popular metric is the Quick Ratio, or Acid Test, which is the company's current assets minus its inventory and prepaid expenses divided by its current liabilities. ICON Public's quick ratio is 1.291. Generally speaking, a quick ratio above 1 signifies that the company is able to meet its liabilities.

Next up in our analysis is ICON Public's levered free cash flow, which stands at $482.22 Million. This represents the cash that is available to the company after all of its expenses and income are accounted for -- including those that arise outside of its core business activities. This money can be used to re-invest in the business or to payout a dividend. For now, at least, ICON Public has chosen the former.

At Market Inference, we will keep monitoring ICON Public to see if the analysts were right to recommend the stock despite its valuation issues. We recognize that numbers don't always tell the whole story, and that qualitative factors often set high performing investments apart from the rest.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.