The end of an earnings season can be a great time to discover new stocks and assess how companies are handling the current business environment. Let’s take a look at how Fortrea (NASDAQ: FTRE) and the rest of the drug development inputs & services stocks fared in Q3.
Companies specializing in drug development inputs and services play a crucial role in the pharmaceutical and biotechnology value chain. Essential support for drug discovery, preclinical testing, and manufacturing means stable demand, as pharmaceutical companies often outsource non-core functions with medium to long-term contracts. However, the business model faces high capital requirements, customer concentration, and vulnerability to shifts in biopharma R&D budgets or regulatory frameworks. Looking ahead, the industry will likely enjoy tailwinds such as increasing investment in biologics, cell and gene therapies, and advancements in precision medicine, which drive demand for sophisticated tools and services. There is a growing trend of outsourcing in drug development for nimbleness and cost efficiency, which benefits the industry. On the flip side, potential headwinds include pricing pressures as efforts to contain healthcare costs are always top of mind. An evolving regulatory backdrop could also slow innovation or client activity.
The 7 drug development inputs & services stocks we track reported a strong Q3. As a group, revenues beat analysts’ consensus estimates by 3.1%.
Thankfully, share prices of the companies have been resilient as they are up 7.1% on average since the latest earnings results.
Fortrea (NASDAQ: FTRE)
Spun off from Labcorp in 2023 to focus exclusively on clinical research services, Fortrea (NASDAQ: FTRE) is a contract research organization that helps pharmaceutical, biotech, and medical device companies develop and bring their products to market through clinical trials and support services.
Fortrea reported revenues of $701.3 million, up 3.9% year on year. This print exceeded analysts’ expectations by 8.2%. Overall, it was a strong quarter for the company with a solid beat of analysts’ revenue estimates and full-year revenue guidance exceeding analysts’ expectations.
“Fortrea delivered a solid performance that met expectations in the third quarter by partnering with our clients and advancing the development of potentially life-changing treatments for patients,” said Anshul Thakral, CEO of Fortrea.
Fortrea achieved the biggest analyst estimates beat of the whole group. Unsurprisingly, the stock is up 22.7% since reporting and currently trades at $11.90.
Is now the time to buy Fortrea? Access our full analysis of the earnings results here, it’s free for active Edge members.
Best Q3: Medpace (NASDAQ: MEDP)
Founded in 1992 as a scientifically-driven alternative to traditional contract research organizations, Medpace (NASDAQ: MEDP) provides outsourced clinical trial management and research services to help pharmaceutical, biotechnology, and medical device companies develop new treatments.
Medpace reported revenues of $659.9 million, up 23.7% year on year, outperforming analysts’ expectations by 2.7%. The business had an exceptional quarter with an impressive beat of analysts’ organic revenue estimates and an impressive beat of analysts’ full-year EPS guidance estimates.
Medpace scored the fastest revenue growth among its peers. The market seems happy with the results as the stock is up 10.1% since reporting. It currently trades at $602.77.
Is now the time to buy Medpace? Access our full analysis of the earnings results here, it’s free for active Edge members.
Weakest Q3: IQVIA (NYSE: IQV)
Created from the 2016 merger of Quintiles (a clinical research organization) and IMS Health (a healthcare data specialist), IQVIA (NYSE: IQV) provides clinical research services, data analytics, and technology solutions to help pharmaceutical companies develop and market medications more effectively.
IQVIA reported revenues of $4.1 billion, up 5.2% year on year, exceeding analysts’ expectations by 0.5%. Still, it was a mixed quarter because it struggled in other parts of the business.
IQVIA delivered the highest full-year guidance raise but had the weakest performance against analyst estimates in the group. The stock is flat since the results and currently trades at $218.81.
Read our full analysis of IQVIA’s results here.
West Pharmaceutical Services (NYSE: WST)
Founded in 1923 and serving as a critical link in the pharmaceutical supply chain, West Pharmaceutical Services (NYSE: WST) manufactures specialized packaging, containment systems, and delivery devices for injectable drugs and healthcare products.
West Pharmaceutical Services reported revenues of $804.6 million, up 7.7% year on year. This number topped analysts’ expectations by 2.1%. It was a very strong quarter as it also logged an impressive beat of analysts’ full-year EPS guidance estimates and a beat of analysts’ EPS estimates.
The stock is flat since reporting and currently trades at $277.41.
UFP Technologies (NASDAQ: UFPT)
With expertise dating back to 1963 in specialized materials and precision manufacturing, UFP Technologies (NASDAQ: UFPT) designs and manufactures custom solutions for medical devices, sterile packaging, and other highly engineered products for healthcare and industrial applications.
UFP Technologies reported revenues of $154.6 million, up 6.5% year on year. This result surpassed analysts’ expectations by 3.3%. Overall, it was a very strong quarter as it also recorded an impressive beat of analysts’ revenue estimates and a beat of analysts’ EPS estimates.
The stock is up 22.8% since reporting and currently trades at $245.
Read our full, actionable report on UFP Technologies here, it’s free for active Edge members.
Market Update
As a result of the Fed’s rate hikes in 2022 and 2023, inflation has come down from frothy levels post-pandemic. The general rise in the price of goods and services is trending towards the Fed’s 2% goal as of late, which is good news. The higher rates that fought inflation also didn't slow economic activity enough to catalyze a recession. So far, soft landing. This, combined with recent rate cuts (half a percent in September 2024 and a quarter percent in November 2024) have led to strong stock market performance in 2024. The icing on the cake for 2024 returns was Donald Trump’s victory in the U.S. Presidential Election in early November, sending major indices to all-time highs in the week following the election. Still, debates around the health of the economy and the impact of potential tariffs and corporate tax cuts remain, leaving much uncertainty around 2025.
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