Having been in operation for  more than three decades, PPD Inc. (PPD - Get Rating) has evolved into an established contract research organization (CRO) focused on delivering life-changing therapies. The company went public in February 2020 after having been taken private in 2011 by private equity firms the Carlyle Group Inc. (CG) and Hellman & Friedman. It has made several significant investments since then, which have paid off and is reflected in its 62.7% gains over the past year.

Also, PPD has been playing an important role in the fight against the COVID-19 pandemic by providing  laboratory services to various companies for vaccine studies. The company has also been expanding its presence in the world’s second largest economy: It has announced plans to open a laboratory in Suzhou, China to support China-based biotech companies and Western pharmaceutical companies in managing China research studies. The laboratory is expected to be fully operational later this year.

Here are the factors that I think could influence PPD’s performance in the near term:

Impressive Historical Growth

PPD’s revenue and EBITDA increased at CAGRs of 19.2% and 8.8%, respectively, over the past three years. This can be attributed to the company’s product and service innovation. It established Accelerated Enrollment Solutions (AES) in 2018, which is a business unit involved in combining patient data and managing a network of clinical research sites. AES also acquired the clinical research site business of Bioclinica in September 2019, thus expanding its global footprint and solidifying its leadership position in patient access and site management.

Robust Recent Financials

PPD’s revenue for the fourth quarter ended December 31, 2020 was $1.36 billion, up 30.3% year-over-year. While its income from operations increased more than 47% year-over-year to $166.58 million for the quarter, its net income increased 980.2% year-over-year to $73.09 million. The company’s adjusted EPS also increased 18.2% year-over-year to $0.39 for the fourth quarter. In fact, PPD surpassed consensus EPS estimates in three of the trailing four quarters.

Favorable Analyst Estimates

Analysts expect PPD’s revenue to increase 20% for the current quarter ending March 31 and 26.8% for the quarter ending June 30. Its EPS is expected to grow 18.5% in fiscal 2021, 17% in fiscal 2022 and at a rate of 17.2% per annum over the next five years.

The stock has an average broker rating of 1.34, indicating favorable analyst sentiment. Wall Street analysts expect it to hit $41.29 in the near term, which represents  a potential upside of 16.2%.

POWR Ratings Reflect PPD’s Rosy Prospects

PPD has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. PPD has an A grade for Growth, which is in sync with its favorable analyst estimates. Also, the stock has a B grade for Stability.

In addition to the POWR Ratings grades I’ve just highlighted, you can see PPD’s ratings for Value, Momentum, Sentiment and Quality here.

PPD is ranked #13 of 239 stocks in the Medical – Pharmaceuticals industry.

Click here to access several other top-rated stocks in the same industry.

Bottom Line

Given the nature of the services it provides, we think PPD should witness steady demand in the coming months. Moreover, the company has plenty of upside because  it is expanding its geographic reach and possesses solid financials. So, it is wise to buy the stock now.

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PPD shares were trading at $37.43 per share on Tuesday afternoon, up $0.02 (+0.05%). Year-to-date, PPD has gained 9.38%, versus a 6.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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