Book-to-bill Ratios And RFP Improvements Will Drive Performance

Key Takeaways

• Improved backlog growth expectations and higher book-to-bill ratios could boost Medpace's revenue and stabilize margins.
  
• Effective share repurchase strategies may enhance earnings per share through reduced share count under the current authorization program.
  
• Increased price competition among CROs and elevated pipeline cancellations signal potential revenue growth challenges and pressure on Medpace's profit margins.

Catalysts

Provides clinical research-based drug and medical device development services in North America, Europe, and Asia.

• Medpace anticipates a path to improve backlog growth, expecting book-to-bill ratios above 1.15 in the third and fourth quarters of 2025 with moderating cancellations and an improved business climate, which could positively impact revenue growth.
  
• The company experienced strong RFP flow in the first quarter, although the quality was variable. Improvements in the quality and conversion of RFPs to backlog could enhance future earnings prospects.
  
• Medpace reported a year-over-year revenue increase of 9.3% in the first quarter of 2025. The continued conversion of a significant portion of the $2.8 billion backlog, with $1.61 billion expected to convert to revenue in the next 12 months, could stabilize or grow revenue.
  
• There is a potential for stabilizing or increased net margins if operational execution leads to higher backlog burn rates and reduced project delays, which are critical to sustaining profitability.
  
• Medpace's ability to execute opportunistic share repurchases, with $344.8 million remaining under the authorization program, may enhance earnings per share (EPS) by reducing the share count if repurchases continue effectively.

Medpace Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Medpace Holdings's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 19.3% today to 17.9% in 3 years time.
• Analysts expect earnings to reach $448.4 million (and earnings per share of $15.02) by about May 2028, up from $416.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $389.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.7x on those 2028 earnings, down from 19.9x today. This future PE is lower than the current PE for the US Life Sciences industry at 36.1x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.72%, as per the Simply Wall St company report.

Medpace Holdings Future Earnings Per Share Growth

Risks

• Medpace experienced a decrease in new business awards and backlog for Q1 2025, indicating potential challenges in maintaining revenue growth and converting opportunities to revenue.
  
• An elevated level of pipeline cancellations and varying quality of RFPs suggest potential future declines in net awards and backlog, negatively impacting future revenue projections.
  
• Increased price competition among CROs and clients inviting more competitors to bid for projects could lead to pressure on pricing, impacting Medpace's revenue and profit margins.
  
• A reduction in EBITDA margin due to employee-related costs and foreign exchange rates may indicate challenges in maintaining net margins amidst fluctuating operational costs.
  
• The updated 2025 guidance projects modest revenue growth and potential decline in EBITDA, suggesting constrained earnings ability relative to previous year aspirations.

Valuation

• The analysts have a consensus price target of $300.301 for Medpace Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $342.0, and the most bearish reporting a price target of just $270.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $448.4 million, and it would be trading on a PE ratio of 18.7x, assuming you use a discount rate of 6.7%.
• Given the current share price of $288.77, the analyst price target of $300.3 is 3.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.