Analysts have high hopes for the world's largest CROs, which continue to expand their market shares in an ever-consolidating industry, but Massachusetts giant Parexel ($PRXL) broke from the pack last quarter with a costly stumble. Now, as the company gears up for another earnings release, investors will be watching closely to see whether CEO Josef von Rickenbach has corrected its course.
In the quarter ended Sept. 30, Parexel grew its revenue by 14.4% to $529.1 million and boosted net income by 72.3% to $26 million. That's all well and good, but what spooked the market was a 30% sequential drop-off in net new business, a harbinger of slim growth to come that sent the CRO's share price down almost 20% in a day.
Back in October, von Rickenbach blamed the sluggishness on "lower new business flow from some strategic partners, delayed client decisions with regard to some of our pending proposals and a win rate that was lower than expected." But the CRO doesn't expect the tough quarter to put a long-term hurt on revenue, and the company is still projecting to make up to $1.9 billion in sales in 2014, amounting to about 10% growth.
Meanwhile, competitors like Quintiles ($Q) and Covance ($CVD) are moving in the opposite direction, upping their net new contracts and watching their share prices tick upward. But despite the recent slump, most analysts and market watchers put Parexel in the same class, and the forecast for big CROs remains positive.
Come Jan. 29, when Parexel will release another set of quarterly results, we'll find out whether last quarter was a blip or the start of an alarming trend.
- read Parexel's release