On Aug 13, Zacks Investment Research downgraded drug
development services provider
) to a Zacks Rank #3 (Hold).
Why the Downgrade?
N.J.-based Covance continues to be plagued by a sluggish Early
Development business. In the last reported quarter, the company
reported Early Development revenues of $215 million, down 2.3%
year over year (or down 0.4% on an adjusted basis).
Growth in nutritional chemistry and clinical pharmacology was
offset by pharmaceutical chemistry services and discovery support
services. According to the company, discovery support is an
emerging and fragmented market with a slower-than-expected growth
rate. According to the company, the research products business
has been sluggish historically.
Over the past few quarters, decreasing early-stage research
and development spending by the biopharmaceutical industry has
led to overcapacity in this segment. We believe that factors like
these have affected the company adversely in the recent past.
However, a strong performance by the company's Late-stage
Development neutralized these negative factors. This segment
continues to be the sole growth driver for Covance. In the
reported quarter, net revenue from Late-Stage Development surged
16.9% year over year to $377.7 million. Despite increased
spending on strategic IT projects, the segment witnessed growth
on the back of better-than-expected kit volumes in central
laboratories and Clinical development.
Stocks That Warrant a Look
While we expect Covance to perform in line with its peers and
industry levels in the coming months and advice investors to wait
for a better entry point before accumulating shares. Apart from
) are good buying opportunities. All these three medical device
stocks carry a Zacks Rank #1 (Strong Buy).
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