Parexel: Clinical Trials and Activists

05/26/2017 2:54 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

There are three stories supporting Parexel International (PRXL) right now, asserts growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

The first is the long-term story of the successful drug-research business in which Parexel is a prime outsourcer for pharmaceutical companies wanting to save money on clinical research, medical communications and commercialization activities.

Massachusetts-based Parexel is a capable partner for many international pharmaceutical businesses, though sales and earnings growth has slowed in recent quarters.

The second story, is Parexel’s earnings report on May 3 that beat analysts’ expectations of 73 cents per share in earnings by a penny while its revenue of $605 million matched projections. That report triggered a rally in the company’s stock.

But it’s the third story that’s really heating things up for Parexel’s investors. An activist hedge fund called Starboard Value recently disclosed a 5.7% stake in Parexel, along with a demand that the company either improve results or seek a buyer.

Parexel was already well into a program of cost-cutting via layoffs, so Starboard’s demands seem to conform to reality. If either of Starboard’s demands — the improvement of results or the sale — is met, investors stand to benefit.

Until a couple of weeks ago (despite a brief tick up to 76 in August 2015), PRXL had been stuck under resistance in the low 70s since March 2016.

The good earnings report in early May changed that and the stock was heading up when news of the activist investor’s demands really lit a fire under it. PRXL nicked 80 on May 16 and is hanging around that level now.

There’s a lot of uncertainty about the company’s future, but the potential changes look like they will only increase its stock price. There’s no certainty in either one, but if you like the odds, you can buy a little right here, with a tight stop below 74.

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