Why Quintiles Transnational Is Ready to Rebound

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Quintiles Transnational (NYSE: Q  ) climbed 2% in early trading today after Raymond James upgraded the clinical research organization, or CRO, from "outperform" to "strong buy."

So what: Along with the upgrade, analyst Alexander Draper reiterated his price target of $50, representing about 20% worth of upside to yesterday's close. Quintiles shares have slumped in recent weeks on concerns over slowing growth, but Draper believes that it provides investors with a solid buy-in opportunity, given the strong long-term trends working in favor of CROs.

Now what: Raymond James thinks Quintiles is in a particularly good position to benefit from sector tailwinds. As Raymond James noted:

We continue to like the late stage CRO space as 1) we expect pharma R&D spending to modestly rebound, 2) outsourcing penetration levels are increasing; 3) the larger CROs are gaining market share from the smaller ROs as they have greater geographic scope and therapeutic expertise. In particular, we like Quintiles as the company is the largest player in the CRO space (1.7x larger than its closest peer by 2012 revenue) and the company has very low customer concentration.

With Quintiles off about 12% from its 52-week highs, and trading at a clear forward P/E discount to its peers (18 versus 22), I'd have to agree that the risk/reward trade-off looks favorable.

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