On Wednesday, Medpace Holdings, Inc. (NASDAQ:MEDP), a clinical contract research organization, faced a downgrade in its stock rating by Jefferies, shifting from "Buy" to "Hold." The firm also adjusted the price target for the company's shares to $345 from the previous target of $415.
The downgrade comes after a period of significant growth for Medpace, where the company experienced revenue increases of over 25% per year in 2022 and 2023. This growth occurred despite a five-year low in funding, with Medpace gaining market share during this time.
However, Jefferies points to the distance from the funding peak in 2020 and 2021, noting that more biotechnology companies are now underfunded and are spending their remaining cash more cautiously.
This cautious spending has resulted in cancellations and drop-outs, which Medpace and other private companies in similar positions are witnessing. The trend of these cancellations, initially referred to as "one-off" events by Medpace during its second-quarter call, appears to be continuing and possibly widening.
Jefferies anticipates that Medpace's book-to-bill (B2B) ratio for the third quarter is likely to be at the lower end of the 1.04-1.20x range management had set, which could lead to a 7% impact on the company's earnings per share for 2025.
Despite the downgrade, Jefferies acknowledged the high quality of Medpace as a clinical research organization (CRO). The firm suggests that Medpace could become an attractive investment again with the stabilization of the biotech sector and after a reset of expectations.
Medpace's performance and the broader implications for the biotech industry will likely be monitored closely by investors as the sector navigates through a period of cautious funding and strategic financial management.
In other recent news, Medpace Holdings reported a 14.6% year-over-year increase in Q2 2024 revenue, amounting to $528.1 million. Despite facing elevated project cancellations, the company raised its 2024 earnings per share (EPS) guidance, projecting revenues between $2.125 billion and $2.175 billion, and EBITDA ranging from $430 million to $460 million.
Truist Securities maintained a Hold rating on Medpace's stock due to volatility concerns, setting a price target of $415.
Meanwhile, TD (TSX:TD) Cowen and Guggenheim both retained their Buy ratings on the company's stock, albeit with revised price targets of $434 and $432, respectively. These recent developments reflect the mixed performance and complex picture that Medpace presents to investors.
Despite the challenges, the company remains optimistic, with a 13.7% increase in the ending backlog as of June 30, 2024, amounting to approximately $2.9 billion. Medpace also projects about $1.585 billion of this backlog to convert to revenue over the next twelve months.
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