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Medidata's (MDSO) Margins Under Pressure, Competition Rife

Zacks Equity Research

On Feb 19, we issued an updated research report on Medidata Solutions, Inc. MDSO. In the fourth quarter of 2018, the company’s growth margins remained under pressure mainly due to the SHYFT buyout and associated purchase accounting implications. Additionally, its earnings per share declined in the same time frame. Adjusted earnings came in at 45 cents per share, which dropped by a penny from the year-ago quarter number.

Notably, expensive valuation, a complex cloud-based platform and stiff competition in the MedTech space are the major deterrents.

The stock currently carries a Zacks Rank #4 (Sell).

Factors Hurting Medidata’s Performance

The market for clinical trial solutions is impacted by stiff competition, and changing technology and customer needs. Also, changes in laws and regulations, and frequent introductions of new products and services are concerning.

Further, Medidata has strong contenders like BioClinica, Inc., IQVIA (formerly QuintilesIMS), Oracle, Parexel Informatics, Veeva Systems, Inc. and other large-scale technology providers. It also competes with a number of vendors offering applications and systems namely ERT, CRF Health, Bracket, DataTrak International, Inc., Medrio, Inc., Merge Healthcare (an IBM Company), and OmniComm Systems, Inc.

In fact, Medidata stock looks a bit expensive at the moment. A comparative analysis of the company’s forward P/E (TTM basis) ratio paints a drab picture, which might be a cause of concern for investors. The ratio is currently pegged at 78.95, significantly stretched when compared with the markets at large. The P/E (TTM) ratio of S&P 500 is 17.52 and the median level 19.50 over the past year.

Medidata also looks overvalued when compared with the broader industry’s ratio of 48.32.

Price Performance

Shares of Medidata have gained 11.1% compared with the industry's growth of 2.3% in a year’s time. The current level is also higher than the S&P 500 index's increase of 3% over the same time frame.


Notably, a solid focus on cloud-based services and lucrative acquisitions are aiding Medidata’s performance. In this regard, it is imperative to mention that the company expanded the use of Medidata Clinical Cloud in 2018 to automate operations, increase efficiencies, and gain better data visibility for accelerating their 2125 oncology development program. The Medidata Implementation Team (“MIT”) will deploy the solution to seamlessly enhance and maximize value throughout the company.

Moreover, it had earlier added regulated content and document management capabilities to the Medidata Clinical Cloud, which is noteworthy.

Stocks to Consider

A few better-ranked stocks in the broader medical space are Surmodics, Inc SRDX, Abbott Laboratories ABT and Cardiovascular Systems, Inc. CSII.

Surmodics has a long-term expected earnings growth rate of 10%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abbott’s long-term earnings growth rate is projected at 11.7%. The stock carries a Zacks Rank #2 (Buy).

Cardiovascular Systems exceeded the Zacks Consensus Estimate in each of the trailing four quarters, the average being 77.1%. The stock sports a Zacks Rank of 1.

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