Icon Earnings: Record Backlog Levels Support Long-Term Growth; Shares Fairly Valued

Icon ICLR reported solid second-quarter results highlighted by revenue exceeding $2 billion, representing an increase of 4% from the prior-year period. We have raised our fair value estimate to $243 per share from $234, which is due to strong customer demand and the time value of money since our last update. We continue to have a positive outlook for the firm, and we reaffirm our narrow economic moat and medium uncertainty ratings for Icon. The stock has moved into 3-star territory as it has increased about 30% since Icon reported its first-quarter results in April. We view shares as currently trading just above our fair value estimate.

We forecast 2023 revenue will reach about $8.1 billion, representing growth of 5% over 2022. We anticipate high-single- digit revenue growth over the next few years thanks to positive clinical research outsourcing trends. Icon’s net business wins exceeded $2.4 billion during the quarter, and it reported a net book/bill ratio of 1.20 times. Icon’s backlog grew to a record $21.7 billion, representing an increase of 8.5% year over year.

Icon’s narrow moat rating is based on its intangible assets and high customer switching costs, which are helping support strong demand for Icon’s clinical trial services. We continue to believe Icon’s 2021 acquisition of PRA Health Sciences for $12 billion strengthens the company’s global footprint and creates a more diversified therapeutic portfolio with broader service offerings, further enhancing the company’s narrow moat.

We like that management has continued to focus on paying down debt from its acquisition of PRA Health Sciences, and Icon ended the quarter with a net debt/trailing 12-month adjusted EBITDA ratio of 2.5 times, which is down from 2.8 times at the end of the first quarter and significantly lower from 3.4 times at the end of 2021.