A Big Upside for Pharmaceutical Product Development

| About: Pharmaceutical Product (PPDI)

I've always been intrigued by Pharmaceutical Product Development Inc. (NASDAQ:PPDI). It was a great idea for a stock -- a company that handled all the clinical trials for major pharmaceutical companies. There would never be a shortage of product to be tested, and the business was truly global.

PPDI has handled studies across many different therapeutic arenas and over a hundred countries. The 10-K says that it handles preclinical programs, Phase I-IV clinical trials, vaccines and laboratory services; and provide product launch services, medical information, patient compliance programs, patient and disease registry programs, product safety, Phase IV monitored studies and prescription-to-over-the-counter transition programs.

With 25 years in business, and services provided to 49 of the world's top 50 pharmaceutical companies, PPDI is a business worth detailed examination. Mind you, there is competition in this sector. Covance Inc. (NYSE:CVD) and Parexel International Corporation (NASDAQ:PRXL) are serious players. The other general threats to the business are the state of the economy and regulatory attacks on pharmaceutical and biotech firms. Revenue has struggled over the past few years as the company battled the recession. Fortunately, PPDI has $3.4 billion in backlogged authorizations to deflect any possible contract cancellations. In addition, the company has $381 million in cash and has no debt. On top of this, it generated $154 million in free cash flow during the trailing twelve months and $144 million in net income. It's also comforting to know that the Executive Chairman owns 6.5% of the company, and hasn't sold anything recently.

How is this actionable?

I like PPDI's business and its future. Analysts see a 5-year annualized growth rate of 17.29%, up from 13% less than a year ago. With a 17x multiple of 2016 earnings of $3.55, it gives a stock price of $59, or a 140% return from here, not including its 2.3% dividend yield.

Disclosure: I am long PPDI.