April 28, 2008 - Parexel Corp. (PRXL-NASDAQ) excels in contract research. A top contract research organization (CRO), the firm counts among its clients some of the world's largest drug, biotech, and medical device firms. Its Clinical Research Services segment offers such services as clinical trial and data management, study design and recruitment, biostatistical analysis, clinical pharmacology, and industry training and publishing. PAREXEL Consulting and Medical Communications Services handles the non-clinical aspects of drug development, regulatory affairs, and new product launches. Its Perceptive Informatics unit offers IT systems and services that help manage clinical trials.

The fuel for new heights: earnings. In 2001, the company reported a loss of 2 cents a share. Then it improved to a positive 26 cents a share, followed by a 21 cent a share report in 2003. In 2004, earnings went up to 26 cents a share, only to see a loss of 68 cents a share in 2005. In 2006, they jumped to 44 cents a share in the black, then improved by over 50% to 67 cents in 2007. This year, analysts see 85 cents and $1.15 next. Seems like the volatility of earnings is gone.

While earnings were gyrating, sales were ramping, going up every year, starting in 1996 when the company went public. On a per share basis, sales have increased from $2.82 in 1996 to a current level of $13.46. Analysts predict $16.95 this year and $20 next year. Over the next 5 years, on average, they see revenues growing by 20% a year.

In the first half of 2008 (fiscal year ends on June 30, 2008), sales improved by 29% compared to the same period last year. Operating income increased by 47%, thanks to higher volume and wider margins. Earnings per share were up 25% in the second quarter of the year over the same quarter of 2007. For the year, analysts predict a 30% increase in sales and earnings in 2008.

In the most recent reported quarter, Contract Research Organization (CRO) booked new business of $486 million, putting the backlog at $1.78 billion, a full 25% higher than the year-end total. Analysts expect a 40% increase for the full year. More new business is expected from the booming clinical research environment. Larger revenues along with expense management with wider margins should directly benefit earnings per share.

PRXL is looking east, expanding its presence in Asia. It bought an Asian based firm called APEX to penetrate markets and have a larger reach into this all important, growing region.

That's all the good news. The bad: valuations are running near record highs with a P/E (price to earnings ratio) of 30 and price to book of 4. Much of the anticipated growth seems to already be in the stock.

More numbers: There is no dividend. Current assets are 1.2 times current liabilities. Total debt to equity is .02. Return on Equity is a respectable 15%. Net profit margin was 5% in 2007 with expectations of 5.3% this year and 5.8% next year. Sales were $742 million last year. Look for $950 million this year and $1.12 billion next year.

Parexel has many good things going for it. Earnings have improved since the loss of 2005 and are ramping. The stock seems to reflect all the good news, but it is off its recent highs. At some point, it should warrant more scrutiny since the growth appears to be solid.

- Company Web site: www.parexel.com

- Ted Allrich