FDA Reforms And NVIDIA Collaboration Will Lower Operating Costs

Key Takeaways

• Strong growth in Technology & Analytics Solutions and FDA policy shifts may enhance IQVIA's revenue through increased demand for real-world evidence.
  
• Strategic partnerships and AI collaborations promise cost reductions and improved margins, supporting future revenue and earnings growth.
  
• Macroeconomic uncertainty, funding challenges, and lower-margin partnerships could impact IQVIA's revenue growth and profit margins.

Catalysts

Provides clinical research services, commercial insights, and healthcare intelligence to the life sciences and healthcare industries in the Americas, Europe, Africa, and the Asia-Pacific.

• The company continues to see strong growth in the Technology & Analytics Solutions (TAS) segment, driven by double-digit growth in real-world evidence. This suggests potential for sustained revenue growth as demand for real-world evidence increases with pharmaceutical companies launching new drugs and expanding their commercial roadmaps.
  
• The announcement by the FDA Commissioner to reduce animal testing in favor of AI-based models and increased use of real-world evidence is expected to benefit IQVIA. This aligns with the company's strengths and is likely to drive increased demand and potentially improve revenue streams from enhanced approval processes.
  
• The backlog for Research & Development Solutions (R&DS) reached a record $31.5 billion, growing 4.8% year-over-year. This indicates robust demand that is likely to support future revenue and earnings growth as these contracts are executed.
  
• Ongoing partnerships and renewed strategic contracts with large pharmaceutical clients position IQVIA for continued revenue growth. With all 22 strategic partnerships renewed, this stability and potential expansion of contract scopes could enhance revenue streams and improve net margins due to economies of scale.
  
• The company’s collaboration with NVIDIA and the deployment of specialized AI agents promises efficiency gains and cost reductions. This technological advancement is expected to lower operational costs, potentially improving net margins and driving earnings growth as it is scaled across the business.

IQVIA Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming IQVIA Holdings's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.6% today to 11.2% in 3 years time.
• Analysts expect earnings to reach $2.0 billion (and earnings per share of $11.06) by about May 2028, up from $1.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.3 billion in earnings, and the most bearish expecting $1.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.5x on those 2028 earnings, up from 19.3x 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 4.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.76%, as per the Simply Wall St company report.

IQVIA Holdings Future Earnings Per Share Growth

Risks

• Delayed decision-making by customers and increased time from RFP issuance to award due to macroeconomic uncertainty could impact IQVIA’s future revenue growth.
  
• Deterioration in the funding environment for emerging biopharmaceutical companies (EBPs), especially early-stage, poses a risk to future revenue from this segment.
  
• Potential tariffs and restructuring actions by the U.S. administration create uncertainty that could delay or impact the awarding of new contracts, affecting revenue growth and pipeline.
  
• The shift towards Full-Service Partnerships (FSP) with large pharma clients could pressure margins, as FSP traditionally carries lower margins than Full-Service Outsourcing (FSO), impacting net margins.
  
• Currency exchange rate fluctuations and mix shifts in the business segments, such as higher contributions from lower-margin services, may adversely affect profit margins and earnings.

Valuation

• The analysts have a consensus price target of $216.307 for IQVIA 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 $268.0, and the most bearish reporting a price target of just $160.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $18.0 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 20.5x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $146.2, the analyst price target of $216.31 is 32.4% higher.
  
• 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.