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Baron Funds on ICON Public Ltd Co. (ICLR): “We See Significant Upside in the Stock Price”

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Baron Funds, an asset management firm, published its “Baron Health Care Fund” first quarter 2021 investor letter – a copy of which can be downloaded here. A return of 0.58% was delivered by the fund’s institutional shares for the Q1 of 2021, below both its S&P 500 and Russell 3000 Health Care benchmarks that delivered a 6.17% and 2.14% returns respectively for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Baron Health Care Fund, in their Q1 2021 investor letter, mentioned ICON Public Limited Company (NASDAQ: ICLR), and shared their insights on the company. ICON Public Limited Company is a Dublin, Ireland-based medical device company that currently has an $11.3 billion market capitalization. Since the beginning of the year, ICLR delivered a 9.63% return, extending its 12-month gains to 38.66%. As of April 29, 2021, the stock closed at $216.13 per share.

Here is what Baron Health Care Fund has to say about ICON Public Limited Company in their Q1 2021 investor letter:

"We added to our position in ICON Plc, the sixth largest global contract research organization (“CRO”) in terms of revenue. ICON provides outsourced drug and device development and commercialization services to pharmaceutical, biotechnology, medical device, and government and public health organizations. During the quarter, ICON announced an agreement to acquire PRA Health Sciences, Inc., the fifth largest CRO, in a cash and stock deal valued at $12 billion. ICON’s stock price declined after the transaction was announced because investors were concerned about integration risks and potential for customer losses. Some ICON investors also didn’t like that the company’s balance sheet would go from a net cash position to 4.5 times pro forma net leverage. We saw the decline in the stock price as an opportunity to buy a very good business with an excellent management team at an attractive valuation. After the deal closes, ICON will be the second largest global CRO in an industry where scale really matters. We view the combination as a merger of two well-run clinical CROs that are both enjoying robust growth and solid bookings, with similar cultures and management structures, complementary strengths and limited client overlap. The CRO sector is experiencing healthy growth driven by record levels of biotechnology funding, solid biopharmaceutical R&D spending and continued outsourcing of clinical development. We think the merger will be highly accretive, mid-teens in the first year and 20% thereafter. We think synergy goals are relatively modest, and most are on the cost side. There are also revenue synergies to be realized, including cross-selling ICON’s central lab and patient recruitment network and PRA’s data services and mobile capabilities as well as having a broader, more competitive geographic footprint especially in Asia. CROs are cash generative businesses, and leverage is expected to come down rapidly over the next couple of years. Long term, management targets high single-digit revenue growth and mid-teens earnings growth. We see significant upside in the stock price over a multi-year period."

Our calculations show that ICON Public Limited Company (NASDAQ: ICLR) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, ICON Public Limited Company was in 29 hedge fund portfolios, compared to 24 funds in the third quarter. ICLR delivered a 4.88% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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Disclosure: None. This article is originally published at Insider Monkey.