Jefferies Previews Booming Biotech Earnings

Ahead of Q1 earnings, analysts at Jefferies are "positively biased" towards contract research organizations (CRO), including PRA Health Sciences Inc PRAH and Quintilles Transnational Holdings Inc Q. These organizations provide support for biotech companies on an outsourced or contract basis.

Jefferies based its thesis on "robust biotech funding" that is pushing "global R&D spending higher." Specifically, Jefferies said that growth rates for 2015 and 2016 will be 250 basis points better than its prior forecast on a constant dollar basis, with global R&D spending gaining 4.5 to 5 percent in 2015. Additionally, these tailwinds are against the backdrop of continued "deal activity."

Alongside this note, Jefferies upgraded Quintilles to a Buy with a $79 price target. That target is $10, or 14 percent, above Friday's $69.09 closing price. Jefferies said the stock will continue to gain as margins expand and bookings lead to "accelerating 2H15 revenue growth." Additionally, relative to its peers, Quintilles has underperformed by 780 basis points, year-to-date. Year-to-date, Quintilles gained 17.3 percent, adding to gains of 27 percent in 2014.

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Regarding foreign exchange, Jefferies said that FX will hurt revenue, but help margins. Most companies already incorporated the strengthening USD during Q4 earnings reports, though Jefferies said that the continuing strength of the dollar could have a "positive impact to EBIT and EPS" that is "quite large" for some companies. PRA Health Sciences, the analysts said, will have the "largest benefit."

Simultaneously, Jefferies also increased its price target on PAREXEL International Corporation PRXL and Charles River Laboratories CRL. Although they increased PAREXEL's price target, the analysts are not bullish the stock, placing the price target $5 below current price at $62.