IQVIA Earnings: Cautious Client Spending Affects Commercial Segment; Lowering Fair Value Estimate to $250

IQVIA IQV reported second-quarter results highlighted by revenue of $3.7 billion, representing a 5.3% increase versus the prior year. Continued client cautiousness due to uncertain macroeconomic conditions has affected sales for IQVIA’s technology and analytics segment and contract sales and medical solutions segment. As a result, management trimmed its 2023 outlook, and we lowered our fair value estimate to $250 per share from $268 to reflect reduced discretionary spending in the near term. The stock is currently trading in 4-star territory about 12% below our fair value estimate.

COVID-19-related revenue was $120 million, which was down about $140 million versus the second quarter of 2022. Excluding the impact of foreign exchange and COVID-19-related work, organic growth was 9% year over year. Despite clients’ cautious spending in the commercial business, the clinical business remains resilient, as evidenced by strong clinical trial outsourcing demand. IQVIA’s research and development solutions segment achieved bookings of $2.7 billion during the quarter, representing a book/bill ratio of 1.28 times. The company’s backlog stands at a record $28.4 billion, which is up 11% year over year.

We believe the scale of IQVIA’s business and its differentiated offerings across its commercial and clinical segments support healthy underlying organic growth in the long term. We continue to have a positive outlook for IQVIA as we anticipate outsourcing from biotech and pharma companies will further drive growth for large contract research organizations. We forecast mid-single-digit sales growth in 2023, resulting in over $15.1 billion in revenue.

IQVIA’s strength within the CRO industry and strong customer relationships support its narrow moat rating, which is based on intangible assets and high switching costs associated with running late-stage clinical trials. In addition, a high barrier to entry is created by the scale of IQVIA’s data and best-in-class analytical technology.