INC Research Shares Edge Higher; Goldman Adds To 'Conviction Buy' List

Goldman Sachs added the Buy-rated INC Research Holdings Inc INCR to its Americas Conviction List with a price target of $62, implying a potential upside of 38 percent.

"Specifically, we think now is the right time to get more positive on INCR due to: (1) Robust industry fundamentals – 2Q group net bookings were up 14% (INCR 15.8%); (2) group TTM book-to-bill stands at a healthy 1.24x (INCR 1.25x); and (3) stabilizing-to-improving conversion rates (INCR +10bps seq.)," analyst Robert Jones wrote in a note.

According to Goldman Sachs analysis, INCR's topline could be about 5 percent above consensus in 2017 and 2018 if bookings grow 10 percent annually and if conversion rates hold at 2015 levels. Of note, the company posted average bookings growth of 20 percent from 2012-15.

Jones noted that Street's top-line projections for INCR reflect overly conservative assumptions. The Street currently forecasts INCR 2015-2018 revenue growth to moderate to an 11.2 percent CAGR versus a 16.5 percent CAGR from 2012- 2015, and growth in 2017-2018 just north of 10 percent.

"Though we acknowledge that as the company scales maintaining mid-teens growth will be more difficult, we note that Street estimates do not include any contribution from potential M&A, and the implied assumptions related to net bookings growth and backlog conversion reflect a material slowdown in both, which we think are not justified," Jones continued.

Lastly, the analyst sees room for multiple expansion in the current valuation. On a PEG basis, INCR is at the lowest in the group at 0.8x 2017E vs. the 1.0x CRO average, and well below SMID cap healthcare names at 1.5x.

Shares of INC Research closed Thursday at $45.01.