eReasearch Shares Charge Forward Before Earnings

eResearch Technology Inc. (ERES) is a provider of cardiac safety services that evaluate the safety of new drugs. Their revenue consists of license sales, cardiac safety services and fees from consulting and cardiac safety equipment rentals. The company's earnings and revenue have suffered over the past year as a result of a new regulatory environment and the addition of competitors.

But in the last quarterly report in February, CEO Dr. Michael McKelvey said 2006 represented a "favorable turning point for the company" that will "lead to a successful and more profitable 2007." The company's new management alluded to a turnaround as it provided guidance for the full year that was ahead of Wall Street's original estimates, a positive surprise because of past earnings disappointments.

For 2007, the company expects per-share earnings of $.25 to $.30 per share on revenue $95 million to $103 million, compared with the average analyst estimate of $.25 cents per share on revenue of $97.4 million. While better earnings in the future will be helped by savings in efficiency improvements, the company needs to show investors that it can book some major contracts and generate sales to start showing some respectable revenue growth. The company has made some progress in this area, signing $27.5 million in new contracts in the fourth quarter alone and reporting a backlog of $96.4 million, an increase of $4.3 million from the prior quarter.

But since February, there has been no indication whatsoever that the company is getting back on track by adding new contracts and generating sales because eResearch has failed to communicate with investors. Though there has been no response from the company, the share price has started to appreciate in the past couple of days in anticipation of the earnings report.

Based on the recent trading in the company's stock that has signaled some hefty accumulation, the large blocks of volume are a very telling sign that the company could have a good quarter. On Friday, the stock rose 6% to $8.70 on volume of 919,700 shares or nearly three times the daily average volume and by far the heaviest day of trading in over two months. Coincidentally, that was the day after eResearch held its annual shareholder meeting. While it is possible some optimism was expressed about the business, we cannot know for sure.

What does not lie, however, is the ticker and though the stock opened a bit lower this morning, shares of eResearch are now breaking out to the upside, up $.39, or 4.48%, to $9.09 on strong volume ahead of Thursday's first quarter earnings report.

ERES 1-yr chart: