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Holding Analysis - PPD Q3 Earnings

Contributed by mm | October 27, 2003 2:18 PM PST

PPD announced its Q3 earnings of $0.54/share after the market close. While the EPS jumped 17%, net income only went up 5%. Before that, PPD announced its Q3 production and recruiting results on October 2.

Things I Like

- Attrition rate is contained. Q3 attrition rate is 10.80%, the lowest in 5 quarters.
- Company has paid back all stock purchase line of credit.

Things I Don't Like/Questions

- The company seems to slow down its stock repurchase pace. It only purchased 86,100 shares in Q3. Does it mean the company feels the stock is appropriately valued now?
- Operating cash flow is 27% below last year. Seems G&A cost like litigation cost and associate P&L are somewhat out of control. Management should provide guidance as of whether the G&A overshoot is a one-time event or not.
- Investing cash flow is -$10M which is questionable.
- Why company is scheduling its conference call two days after the earnings release?

Valuation

At today's closing price of $25.56, the stock is trading at 11.8x EPS (taking Q3 EPS * 4) or 10.0x operating cash flow.

Frankly speaking, PPD missed my personal expectation for the EPS. I forecasted $0.60/share and PPD missed almost $1M in net income (due to G&A primarily) and had not repurchased as many shares as I like.

I'm still maintaining the $29 price target, but will put it in negative outlook due to lack of visibility of G&A cost and management's behavior to greatly slow down stock repurchase.

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