PAREXEL International (NASDAQ:PRXL) continues to improve its operating performance, even as the research services provider's backlog expands. The company's commitment to operate leaner and meaner is praiseworthy, but its stock may already be fairly valued.

The company's fiscal fourth-quarter service revenue came in at $141.1 million, up just 0.1% versus $140.9 million in the same period last year. Despite the anemic top line showing, operating earnings jumped 183% to $10.2 million from $3.6 million. Indeed, improving operating margins has been a major priority for PAREXEL, which hopes to increase margins from 6.6% for fiscal 2004 to 10% in fiscal 2005.

PAREXEL explained that it is managing costs judiciously, but the margin improvement so far probably also relates to a shift in revenue mix. The firm's core business, clinical research services, actually saw fourth-quarter revenues drop 11.7%. PAREXEL's traditional business specialty, later-stage clinical trials, remains sluggish, as pharmaceutical and biotech companies continue to concentrate on earlier studies.

Meanwhile, the company's smallest business unit, Perceptive Informatics, which provides high-margin data management for clinical trials as well as other services, managed a healthy 28% surge in revenue in the fourth quarter. The division contributed just 7% of the total top line for the period, but if it can maintain its pace of growth as the company expects, its significance seems destined to grow.

Looking ahead, PAREXEL's prospects seem solid. In the last six months, net new business versus last year rose 19% to $358.5 million. Further, robust spending in the Phase 1 area, as reported by PPD (NASDAQ:PPDI) and Covance (NYSE:CVD), should begin to flow into later-stage trials. Finally, the demand for outsourcing services continues to mount as more biotech outfits go public and pharmaceutical companies increase their outsourcing to reduce costs and boost productivity. PAREXEL's own efforts in this latter area may endear it to these customers.

Still, PAREXEL shares are already priced at nearly 20 times forward earnings on the low end of 2005 estimates. For more investors to jump in, the company will have to do even better.

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.