UPDATE: ISI Initiates Coverage on PAREXEL With a Neutral Rating

In a report published on Tuesday, International Strategy & Investment Group analyst Ross Muken initiated coverage on PAREXEL PRXL with a Neutral rating and a $50 PT.

In the report, ISI noted that, "Impressive top-line growth at PRXL (>20% in FY13E) has been driven by a robust re-acceleration of biopharma development spending coming out of the recession as well as the contribution from a number of large strategic contracts (including PFE, LLY, BMY). While growth will moderate to some extent in FY14-15 as evidenced by recent book-to-bill declines (>1.6x in FY12 to <1.2x in 1H'13), we contend that increased outsourcing (reaching ~50% penetration in the medium term), low-to-mid-single digit biopharma R&D growth, and share gains will drive double-digit top-line growth. Further, differentiated offerings such as PCMS and Perceptive Informatics also provide PRXL with cross-selling opportunities. Finally, we expect operating margins to expand ~250 bps over the next three years (as revenue from strategic partnerships comes to scale and labor mix become more favorable), driving >20% earnings growth. Despite the potential tailwinds, we contend that the current valuation is already reflective of enthusiasm for these opportunities and thus we are initiating coverage of PRXL with a Neutral rating and $50.00 PT, which equates to ~20x CY14 EPS."

PAREXEL closed on Monday at $46.57.