PAREXEL (NASDAQ:PRXL) shares hit a new 52-week high this morning in the wake of its fiscal third-quarter earnings release. News of problems at a company-run clinical trial had buffeted the drug research services provider's stock. The market's enthusiasm may stem from the latest numbers' evidence that PAREXEL's business remains stable. Investors should keep in mind, though, that the company remains a laggard in the contract service space.
Revenue for the quarter climbed 16.6% to $157.3 million, a company record. Net income showed even more strength, climbing 46% to $6.8 million, which amounted to $0.25 per share. Notably, though, last year's fiscal third quarter was a low point for PAREXEL. At that time, revenue growth faltered because of project delays and staffing shortages.
PAREXEL's backlog growth is a strong selling point for the company. The firm's backlog has now reached $949.3 million, which represents a 12.4% increase on a quarter-over-quarter basis and a 27.1% jump year over year. Clearly, PAREXEL's business flow looks reasonably secure in the near term.
Unfortunately, the company's progress on the profitability front is less satisfying. Operating margin for the quarter was 7.1%, up from 5.5% in the same period last fiscal year, but about flat with last quarter. Admittedly, stock-based compensation reduced operating margin by 1.2%, but even factoring that in, PAREXEL's performance pales in comparison to competitor Kendle's (NASDAQ:KNDL) 12% first-quarter operating margin.
Finally, PAREXEL shares aren't terribly cheap. According to Yahoo! Finance, PAREXEL sells for 26.7 times estimated 2006 earnings. Compare that to Kendle's forward valuation of 20.6, and it appears that investors' expectations are running high.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
