IQVIA Holdings (IQV): A Modestly Undervalued Gem in the Medical Diagnostics & Research Industry
IQVIA Holdings Inc (NYSE:IQV), despite its 2.05% daily loss and a modest 3-month gain of 4.41%, continues to be a stock of interest for investors. With an Earnings Per Share (EPS) (EPS) of 5.81, the question that arises is whether the stock is modestly undervalued. This article provides a detailed valuation analysis to answer this question. Read on to discover if IQVIA Holdings (NYSE:IQV) presents an investment opportunity.
Company Overview
IQVIA Holdings is the result of the 2016 merger between Quintiles, a leading global contract research organization, and IMS Health, a leading healthcare data and analytics provider. The company's Research & Development segment primarily provides outsourced late-stage clinical trials for pharmaceutical, device, and diagnostic firms. The technology and analytics segment offers aggregated information and technology services to clients in the healthcare industry. IQVIA Holdings also operates a small contract sales business.
Currently, IQVIA Holdings' stock price stands at $214.52, which is lower than its fair value (GF Value) of $243.71. This discrepancy paves the way for a deeper examination of the company's intrinsic value.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's fair trading value.
If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Based on this method, IQVIA Holdings (NYSE:IQV) appears to be modestly undervalued at its current price of $214.52 per share.
Because IQVIA Holdings is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review a company's financial strength before deciding to buy its stock. A good starting point is to look at the cash-to-debt ratio and interest coverage. IQVIA Holdings has a cash-to-debt ratio of 0.11, which ranks it lower than 88.65% of 229 companies in the Medical Diagnostics & Research industry. GuruFocus ranks IQVIA Holdings' overall financial strength at 5 out of 10, indicating fair financial health.
Profitability and Growth
Companies that have consistently shown profitability over the long term offer less risk for investors. IQVIA Holdings has been profitable 10 out of the past 10 years. Over the past twelve months, the company reported a revenue of $14.70 billion and an EPS of $5.81. With an operating margin of 12.94%, IQVIA Holdings ranks better than 72.12% of 226 companies in the Medical Diagnostics & Research industry. Overall, IQVIA Holdings' profitability is ranked 9 out of 10, indicating strong profitability.
Growth is a critical factor in a company's valuation. IQVIA Holdings' 3-year average revenue growth rate is better than 50.73% of 205 companies in the Medical Diagnostics & Research industry. Its 3-year average EBITDA growth rate is 15%, which ranks better than 55.03% of 189 companies in the same industry.
Comparing ROIC and WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, IQVIA Holdings' ROIC was 6.67, while its WACC came in at 9.74.
Conclusion
In conclusion, the stock of IQVIA Holdings (NYSE:IQV) gives every indication of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 55.03% of 189 companies in the Medical Diagnostics & Research industry. To learn more about IQVIA Holdings stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
