IQVIA Earnings: Strong Outsourcing Demand Drives Revenue Growth; Shares Undervalued

Narrow-moat IQVIA IQV reported solid first-quarter results highlighted by revenue over $3.6 billion, representing a 2.4% increase versus the prior year. Strong outsourcing demand continues to drive growth for IQVIA’s research and development solutions segment. We maintain our fair value estimate of $268 per share, and shares currently trade in 4-star territory about 30% below our fair value estimate.

In the first quarter, COVID-19-related revenue was $150 million, which was down about $230 million versus the first quarter of 2022. Excluding the impact of foreign exchange and COVID-19-related work, organic growth was 11% year over year. IQVIA’s research and development solutions segment achieved bookings of $2.6 billion during the quarter, representing a book-to-bill ratio of 1.28 times. The company’s backlog stands at a record $27.9 billion, which was up 40% over the last three years and grew 10% year over year.

While there has been some cautious spending in the emerging biotech segment, we believe the scale of IQVIA’s business and its differentiated offerings across its technology and analytics segment and research and development solutions business supports healthy underlying organic growth in the long term. We 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 revenue growth in 2023.

IQVIA’s strong customer demand continues to support its narrow economic moat rating, which is based on its intangible assets and high switching costs associated with running late-stage clinical trials. A high barrier to entry is also created by the scale of IQVIA’s data and best-in-class analytical technology, which we believe allows the company to be well positioned to continue carrying out next-generation decentralized trials. We also appreciate IQVIA’s diversified customer base, which further strengthens its competitive advantages.