Parexel Posts Impressive Quarter; Estimates Should Continue to Climb

Couple of firms comment on Parexel Intl (NASDAQ:PRXL), a contract research organization that reported its CQ2 results last night:

- Baird notes PRXL reported an in-line quarter, meeting Consensus and the high end of EPS guidance. Operating margin continues to come in light versus expectations; however, strong bookings and FY08 revenue guidance raise suggest that PRXL should be able to comfortably achieve reiterated FY08 EPS guidance of $1.56-$1.66.

Operationally, top-line performance was offset by lower-than-expected firm-wide OM% (8.3% adjusted OM vs. 8.5% modeled) due to higher-than-expected SG&A. Below-target gross margin in PCMS and Perceptive contributed to lower overall OM%.

Strong gross bookings of $356.2M and low cancellations of $38.4M (11%) generated a healthy 1.55x net book-to-bill for the quarter, beating implied guidance of 1.4x-1.5x. Total backlog at the end of the quarter was $1.507B (+37.6% Y-Y), exceeding guidance of $1.460B. Baird maintains Outperform rating and $49 tgt on PRXL.

- Jefferies reiterates Buy rating and raises price target to $48 from $47. All three of PRXL's segments posted results above their estimates, while tax rate dampened the upside. With continued strength in bookings and a backlog up 38% YoY, PRXL is well positioned for a strong FY08.

For the quarter, PRXL reported consolidated gross margins of 35.4%, which is up 90 bps sequentially and 100 bps above Jeffco's estimate. With strong gross margins posted in 2H07, the firm is increasingly comfortable with PRXL's ability to maintain pricing discipline while winning market share. Said differently, PRXL is improving both its hit rate and margin with industry RFP volumes about level at this time last year.

Firm's full year estimate remains at $1.69, slightly above guidance. With PRXL's backlog and continued strong bookings, they view the revenue guidance, reflecting 15-19% growth, as very achievable. Margin expansion takes EPS growth to 31%. PRXL is one of few CROs positioned to repeat this theme for several years.

Notablecalls: A good quarter, generally speaking. The valuation on PRXL is not low but management has tended to guide very conservatively.

Check out management's guidance in the beginning of FY07 vs. now. They don't want to disappoint investors by setting goals that may not be achievable. I think estimates will continue to climb over the next quarters.

The chart looks a bit like there could be 1-2 bucks of upside there. Not a high conviction call by any means. Adjust your risk accordingly.