The diagnostics and research industry has witnessed significant growth over the past few years due to the integration of advanced technologies and analytics in detecting chronic diseases at their early stages. Growing investments in this space and increasing demand from an aging population should drive the industry’s growth. The clinical diagnostics market is expected to grow at a 6.1% CAGR to reach $99.05 billion by 2027.
IQVIA Holdings Inc. (IQV) and Mettler-Toledo International Inc. (MTD) are two prominent players in the diagnostics and research industry. IQV provides advanced analytics, technology solutions, and clinical research services to the life sciences industry. It offers clinical development strategies, therapeutic expertise, predictive and prescriptive analytics, and patient retention services. It serves pharmaceutical, biotechnology, diagnostic, and consumer health companies. On the other hand, MTD manufactures and markets precision, weighing, and analytical instruments for laboratory, industrial, packaging, logistics, and food retailing applications. It also supplies end-of-line inspection systems used in food production, packaging, pharmaceutical, and other industries. It markets its products through its direct sales force and indirect distribution channels.
MTD has lost 21% year-to-date and IQV is down 23%. Which of these stocks is a better pick now? Let’s find out.
Latest Developments
On March 15, 2022, IQV launched a new advancement to its leading life-science-customer-engagement platform, OCE+, that adds IQV’s Next Best recommendation engine to its Orchestrated Customer Engagement (OCE) platform, offering enhanced healthcare professionals (HCP) experiences, improved productivity, and increased ROI. This will help IQV deliver AI-driven recommendations directly into the daily workflows of life sciences commercial teams. This should gain wider recognition across the industry.
On March 22, 2022, MTD introduced its new single-draft weigh-in-motion scale, TruckPass, enabling legal-for-trade accuracy. With the updates to Handbook 44 in the U.S., operations can now benefit from this revolutionary technology by eliminating long lines of trucks to complete a transaction, improving driver safety and data management, and static and dynamic check weighing. This should witness high demand in the coming months.
Recent Financial Results
IQV’s revenues for its fiscal 2022 first quarter ended March 31, 2022, increased 4.7% year-over-year to $3.57 billion. The company’s income from operations came in at $495 million, up 44.7% from the prior-year period. Its adjusted pre-tax income came in at $606 million for the quarter, indicating a 10.6% rise from the prior-year period. While its adjusted net income increased 12.2% year-over-year to $477 million, its adjusted EPS grew 13.3% to $2.47. As of March 31, 2022, the company had $1.39 billion in cash and cash equivalents.
For its fiscal 2021 fourth quarter ended December 31, 2021, MTD’s net sales increased 10.6% year-over-year to $1.04 billion. The company’s gross profit came in at $607.13 million, indicating an 8.6% year-over-year improvement. Its adjusted operating profit came in at $319.07 million, up 9% from the prior-year period. MTD’s net income came in at $230.87 million, representing a 6.7% rise from the year-ago period. Its adjusted EPS grew 13.7% year-over-year to $10.53. As of December 31, 2021, the company had $98.56 million in cash and cash equivalents.
Past and Expected Financial Performance
Over the past three years, IQV’s EBITDA and total assets have increased at CAGRs of 13.2% and 8.3%, respectively.
IQV’s EPS is expected to increase 12.5% year-over-year in fiscal 2022, ending December 31, 2022, and 14.4% in fiscal 2023. Its revenue is expected to grow 5.3% in fiscal 2022 and 10% in fiscal 2023. Analysts expect the company’s EPS to grow at a 15.2% rate per annum over the next five years.
MTD’s EBITDA and total assets have increased at CAGRs of 12.3% and 2.6% over the past three years.
Analysts expect MTD’s EPS to grow 12.6% year-over-year in fiscal 2022, ending December 31, 2022, and 10.7% in fiscal 2023. Its revenue is expected to rise 6.1% year-over-year in fiscal 2022 and 6% in fiscal 2023. Analysts expect the company’s EPS to grow at a 17.8% rate per annum over the next five years.
Valuation
In terms of non-GAAP forward PEG, MTD is currently trading at 1.86x, 32.9% higher than IQV’s 1.40x. In terms of forward EV/Sales, IQV’s 3.59x compares with MTD’s 7.89x.
Profitability
IQV’s trailing-12-month revenue is almost 3.8 times MTD’s. However, MTD is more profitable, with a 58.4% gross profit margin versus IQV’s 34%.
Furthermore, MTD’s ROE, ROA, and ROTC of 338.7%, 20.5%, and 34.1% compare with IQV’s 17.8%, 4%, and 5.3%, respectively.
POWR Ratings
While MTD has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, IQV has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
In terms of Value, both MTD and IQV have been graded a C, which is in sync with their slightly higher-than-industry valuation ratios. MTD’s 18.43x trailing-12-month EV/EBIT is 7.6% higher than the 17.12x industry average. IQV has a 27.05x forward EV/EBIT, 58% higher than the 17.12x industry average.
MTD has an A grade for Quality, consistent with its higher-than-industry profitability ratios. MTD’s 58.4% trailing-12-month gross profit margin is 5.9% higher than the 55.2% industry average. IQV’s C grade for Quality is in sync with its lower-than-industry profit margins. IQV has a 34% trailing-12-month gross profit margin, 38.4% lower than the 55.2% industry average.
Of the 50 stocks in the Medical - Diagnostics/Research industry, MTD is ranked #4, while IQV is ranked #12.
Beyond what we have stated above, our POWR Ratings system has also graded MTD and IQV for Sentiment, Stability, Momentum, and Growth. Get all MTD ratings here. Also, click here to see the additional POWR Ratings for IQV.
The Winner
Surging demand and continued advancements should benefit diagnostics and research stocks MTD and IQV. However, higher profitability makes MTD a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Ratings of Buy or Strong Buy. Click here to access the top-rated stocks in the Medical - Diagnostics/Research industry.
IQV shares were trading at $221.43 per share on Wednesday afternoon, up $6.23 (+2.89%). Year-to-date, IQV has declined -21.52%, versus a -10.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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