Buy PRA Health Sciences (NSDQ:PRAH)

Target: $94

Buy Up To: $74

For subscribers who prefer an option trade: Buy to open the July 21, 2017 call on PRA Health Sciences (PRAH) with a strike price of $75 at $2.25 or lower. Symbol (PRAH170721C75)

I’ve been waiting and hoping for a lower price on PRA to recommend the stock. Alas, the stock market seems to be in agreement that PRA’s growth prospects look good and the buyers keep emerging. PRA Health operates in a similar space to Profit Catalyst Alert holding Charles River Labs (NYSE: CRL).

PRA Health is a contract research organization (CRO). These companies conduct drug trials for large pharma and small biotech companies. Both sets of customers are increasingly turning to outside help to handle these trials while they focus on their expertise, researching and discovering new drug candidates.  

Pharma giant Takeda signed on with PRA last December. Revenue from this contract started dropping into PRA’s backlog in March and will begin flowing through earnings starting in the second quarter. I expect an acceleration in revenue as the company starts these new contracts, which boosted backlog 21% in the March quarter.

Earnings estimates look for 25% growth in 2017 and 20% in 2018. I expect new deals to boost 2018 even more than these estimates. My target is based on a P/E (price to earnings) of 25 times 2018 estimates. As earnings roll in I expect I’ll be increasing my price target.