Leerink Partners on Thursday lowered its rating on ICON plc from Outperform to Market Perform and reduced its price target to $105 from $220. The research note points to ongoing uncertainty tied to an internal accounting review as a primary factor behind the change.
ICON's shares were trading at $80.58 at the time of the report, after tumbling from $144.55 in the prior session, with InvestingPro data cited showing a single-day decline of 44%.
The research firm described the accounting review as having a contained scope so far but said the company's next steps and the ultimate resolution remain unclear. That uncertainty, Leerink said, weighs on near-term visibility and supports a more cautious stance on the stock despite underlying commercial strengths.
Leerink also pointed to sector-wide challenges affecting clinical research organizations, including pressure on cancellations and margin compression that are impacting ICON alongside its peers. Nevertheless, the firm reiterated that ICON remains a capable clinical trial partner and retains multiple opportunities across its client base.
On operating performance, InvestingPro data referenced in the note indicates the company remains profitable on a trailing twelve-month basis, reporting diluted EPS of $7.47. Technical measures cited by the research house show the shares trading in oversold territory.
Leerink’s revised valuation assumes roughly 7.5x CY26 EV/EBITDA, a substantial reduction from the approximately 13x multiple used previously. The firm acknowledged that the new multiple sits below any historical trading range for ICON and conceded it could be unduly punitive given the company’s long-term prospects.
Third-party data in the report shows ICON’s current EV/EBITDA at 8.72 and a robust free cash flow yield of 9%, metrics that the research note suggested might indicate material undervaluation relative to the updated target. ICON is scheduled to report earnings in 13 days, an event the firm said could supply important clarity on the outstanding accounting questions.
In addition to the accounting review, Leerink touched on industry commentary around artificial intelligence, characterizing AI-related worries as "likely overplayed" relative to the strategic investments that ICON and other contract research organizations are pursuing.
Several other broker-dealers have moved to reassess ICON’s outlook amid the internal investigation into revenue recognition practices. BMO Capital reduced its price target to $100 from $175 while maintaining a Market Perform rating, citing concerns that fiscal 2023-2024 revenue could have been overstated.
Jefferies maintained a Hold rating and a $175 price target, noting in its review that ICON’s revenue flows through backlog and that aggressive revenue recognition could affect those flows. Truist Securities likewise reiterated a Hold rating with a $222 price target while acknowledging the ongoing probe into potential revenue overstatements.
Bank of America Securities took a more severe stance, downgrading ICON from Neutral to Underperform and cutting its price target to $75, stating that accounting issues could fundamentally change the investment thesis. Evercore has suspended its rating on ICON stock pending outcomes from the accounting investigation, which the firm said centers on potential revenue recognition issues spanning 2023 through 2025.
Preliminary indications aggregated in these broker reports suggest that revenues for 2023 and 2024 may have been overstated by less than 2% in each year, though the investigation remains ongoing and full conclusions have not been released.
Investors and market participants will be watching the company’s upcoming earnings release closely for additional detail and any further developments related to the accounting review and its potential impact on financial results.