Medpace: Continued Business Growth With Asymmetrical Payoff Opportunity

Core Insights - Medpace Holdings (NASDAQ:MEDP) stock has increased by 69% since the buy rating was issued in January 2023, confirming the initial investment thesis from July 2022 [5] - The company demonstrates strong profitability with a return on invested capital (ROIC) of over 33%, driven by 16% NOPAT margins and a capital turnover of approximately 2.4x [5][8] - Free cash flow (FCF) generation has been robust, ranging from $200 million to $500 million annually since FY'21, with minimal incremental capital employed [5][8] - The company has a solid backlog of approximately $2.9 billion, reflecting a year-over-year increase of 13.7% [10][12] - Management has revised FY24 sales guidance to between $2.125 billion and $2.175 billion, indicating a top-line growth of 13% to 15.3% year-over-year [8][12] Financial Performance - Q2 FY'24 revenues reached $28.1 million, marking a 14.6% year-over-year increase, with year-to-date sales totaling $1.04 billion, up 16.1% year-over-year [8][12] - EBITDA for Q2 is projected between $430 million and $460 million, reflecting a growth of 27% at the upper end, with earnings per share estimated at $11.93 [8][12] - The net new business awards decreased by 4.1% year-over-year to $551 million, with a net book-to-bill ratio of 1.04, indicating a healthy but slightly declining trend [9][12] Valuation and Growth Potential - The intrinsic value of MEDP is estimated to exceed $400 per share, supported by a compounding growth rate of 5% in intrinsic value and a potential reinvestment of 15% of cumulative NOPAT at 20-30% incremental returns [19][22] - The company has maintained a high ROIC, which is expected to attract higher EV/IC multiples, enhancing its market valuation [16][22] - Future projections indicate that economic earnings could reach approximately $287.34 million in FY'24, with a per-share value of $9.33 [25]