July 20, 2016 | 1:30 PM by Fahad Khalid | fkhalid@jaguaranalytics.com

Unlock: Medidata Solutions (MDSO) – Monster Winner for Clients

It pays to do fundamental research. This research note was sent to clients two weeks ago on July 7. Stock is up +15% today after reporting fantastic quarter. To learn more about our approach and how you can become a successful trader, sign up for 2 week trial and test drive live chat room with some of the best traders: SUBSCRIBE

Medidata Solutions (MDSO) – Keep an eye on this stock Jags! No unusual option activity to notice yet. MDSO provides suite of software, data analytics and services to support clinical research and drug development. Over past 6 months the company has won large enterprise deals with Bristol Myers, Boehringer (privately held) and Celgene. 17 of the top 25 global pharmaceutical firms are now its enterprise clients and majority of them signed up in last 6 months. One has to think this should translate into better growth and yet when I look at consensus view, it has not changed for nearly 2 years. Everyone is expecting flat YoY growth. Consensus seems out of whack.

Doing some research last night, here is an interesting comment from KeyBanc last night after MDSO presented at DIA Conference on June 27-30:

“Our conversations with MDSO at the DIA Conference suggest that MDSO is starting to offer value-added services around some of its analytic solutions, namely around its Centralized Statistical Analysis (CSA) offering. Here, MDSO could increasingly help sponsors interpret the output of its analytic tools and help design and implement RBM programs for its clients. We also suspect that MDSO may be closer than investors realize to providing a outcomes-based contracting service for its clients building on its proprietary access to clinical trial data through its electronic data capture system.

Highlights from prior quarter on April 21:

– Q1 EPS $0.25 vs. $0.18 estimate, beat
– Q1 Revenues $104.2M vs. $103.2M estimate, beat
– FY2016 Revenue Guidance $467M vs. $460M estimate, beat

While Jefferies recently downgraded the stock to Underperform on assumption that EV/Sales current valuation of 4.0x will not increase any further given that these large contracts in last 6 months account for no more than $65 million in incremental revenue opportunity, I believe it is short sighted view. First, that incremental revenue is 14% of current revenue base. Secondly, Citigroup believes the cross- and up-selling to this segment is 2-3x the current size, meaning net incremental revenues could be $200 million over time, or 43% of current base.

Valuation appears too cheap here at trough level with all this new business on horizon and consensus is out of whack.

MDSO Chart

#MDSO
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