AI Advancements And New Partnerships Will Improve Future Efficiencies In Life Sciences

Key Takeaways

• Strategic partnerships and AI advancements in TAS are driving efficiencies, enhancing revenue growth, and improving net margins.
  
• Strong backlog and new pharma collaborations indicate robust revenue and potential long-term margin enhancements.
  
• Aggressive pricing and cancellations in clinical solutions, along with project delays, are pressuring IQVIA's revenue and net margins.

Catalysts

Engages in the provision of advanced analytics, technology solutions, and clinical research services to the life sciences industry in the Americas, Europe, Africa, and the Asia-Pacific.

• IQVIA's Technology & Analytics Solutions (TAS) business is expected to experience high single-digit growth due to new drug launches and strategic partnerships, impacting revenue growth positively.
  
• Despite current market challenges, IQVIA's strong backlog of $31.1 billion, including a 5.5% increase in next 12 months revenue from backlog, indicates robust future revenue growth potential.
  
• Renewed large pharma partnerships and capturing greater share of wallet due to consolidation of strategic partnerships can enhance revenue and net margins in the long term.
  
• Improved funding levels in the Emerging Biopharma (EBP) space, with biotech funding showing significant growth, though taking time to translate into RFP flows and awards, suggests potential for long-term revenue increments.
  
• Development and deployment of AI capabilities within TAS offerings, like the IQVIA AI Assistant, are anticipated to drive efficiencies and improve net margins and earnings by delivering more value-added services.

IQVIA Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming IQVIA Holdings's revenue will grow by 5.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.2% today to 11.4% in 3 years time.
• Analysts expect earnings to reach $2.0 billion (and earnings per share of $11.17) by about December 2027, up from $1.4 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $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 27.4x on those 2027 earnings, up from 25.4x today. This future PE is lower than the current PE for the US Life Sciences industry at 45.5x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.04%, as per the Simply Wall St company report.

IQVIA Holdings Future Earnings Per Share Growth

Risks

• The near-term market environment for clinical solutions is described as choppy, with aggressive competitive pricing and tougher negotiations, which could pressure revenue and net margins.
  
• There are higher-than-normal levels of cancellations due to large pharma re-prioritizing their program portfolios, which could reduce future revenue and impact earnings.
  
• A substantial cancellation impacted net new business by approximately $350 million for one trial, which could negatively affect short-term revenue and earnings.
  
• Delays in two mega studies already in the start-up phase, due to client-related logistic issues, affect short-term guidance and could impact near-term revenue and profitability.
  
• The company is facing pricing pressure across both commercial and R&D segments, which can impact net margins and lower overall profitability.

Valuation

• The analysts have a consensus price target of $249.52 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 $273.0, and the most bearish reporting a price target of just $200.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $17.8 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 27.4x, assuming you use a discount rate of 7.0%.
• Given the current share price of $196.64, the analyst's price target of $249.52 is 21.2% 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.