Covance Crafts New 52-Week High - Analyst Blog

On March 20, 2014, shares of Covance Inc. CVD reached a new 52-week high of $105.88 on intraday trading, after a series of positive tidings at the company. The stock however closed at $105.69 representing a robust one-year return of about 47.2% and a decent year-to-date return of about 20.8%.

Last month, Covance reported solid fourth-quarter 2013 results with modest top- and bottom-line beats on healthy growth across both its segments.Adjusted earnings per share EPS of 87 cents were up 18.6% year over year and ahead of the Zacks Consensus Estimate by 3 cents. Revenues surged 10.8% to $623.1 million, ahead of the Zacks Consensus Estimate of $622 million.

The company continues to expand strongly with robust performance in its Late-Stage Development segment. Despite increased spending on strategic IT projects, the segment witnessed growth on the back of better-than-expected kit volumes in central laboratories and the continued strong performance of Phase II-IV clinical development services on increased study activity. In the last reported quarter, Central laboratory services net revenue surged 17% year over year reflecting the ninth consecutive quarter of increase in kit volumes.

Over the past few quarters, Covance was suffering from sluggish early-stage R&D spending in the biopharmaceutical industry which resulted in overcapacity in this segment. However, of late, the company is showing signs of recovery with improvement in Early Development performance on the back of robust growth in clinical pharmacology and a substantial increase in toxicology orders. Key factors behind growth in clinical pharmacology were strong operational performance leading to high levels of client satisfaction and addition of several new preferred providers, increased bed occupancy and evolution of clinical market toward earlier inclusion of patients in the Phase I trials.

Although capital spending environment and competitive landscape remain as overhangs, Covance is positioned well to drive growth in the coming quarters. Another reason behind the optimistic approach among investors might be the expiration of several patents in the pharmaceutical industry, which are likely to improve market conditions for Covance, going forward.

Covance performed impressively with positive earnings surprises in all of the last four quarters, generating an average beat of 3.20%. Moreover, its future growth prospects appear impressive given its focus on organic growth, proactive capital deployment and financial leverage reduction.

Covance currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader medical industry include Align Technology Inc. ALGN, CR Bard Inc. BCR, and Becton, Dickinson and Co. BDX. All the three stocks hold a Zacks Rank #2 (Buy).