Shares of ICON plc (NASDAQ:ICLR) fell sharply, losing roughly 30% on Thursday after the company disclosed that its Audit Committee has launched an internal review of certain accounting practices and pulled its full-year 2025 guidance.
The review, which the Audit Committee said is being conducted with the assistance of outside advisors, is centered on revenue recognition for fiscal years 2023 through 2025. The company also announced that it will delay releasing its quarterly results and now expects to publish financials on or by April 30, 2026.
Analysts who have examined early information tied to the probe report preliminary indications of modest revenue overstatements. Truist analysts cited in investor notes said initial findings point to potential revenue overstatements of less than 2% of total reported revenue in each of fiscal years 2023 and 2024.
Market reaction included swift moves by major brokerages. Bank of America moved to downgrade ICON from Neutral to Underperform and trimmed its price target from $195 to $75. In its research note, Bank of America analysts wrote that questions about revenue overstatements "will completely shake any ICLR investment thesis," and signaled concern about the clarity of the company’s underlying performance.
Evercore responded by suspending its rating on ICON, stating there is an insufficient basis to assign a rating or target price while the accounting matter is unresolved. Evercore analysts also provided an illustrative sensitivity showing how a 1% revenue reduction might affect earnings per share: for 2023 the impact range was given as $0.00 to $0.80, and for 2024 the range was $0.15 to $1.00.
Jefferies analysts highlighted additional questions about how backlog has been reported by the company, warning that the same factors that could lead to over-recognition of revenue might also affect backlog recognition. Jefferies noted that ICON’s historical policy has produced low cancellation rates, but said cancellation activity has not been similarly low over the last four quarters.
The company’s recent corporate history was also noted by analysts. ICON completed a merger with PRA Health Sciences in 2021-2022, and 2023 represented the first year of combined results that the firm described as "clean." The current investigation specifically spans that post-merger period through 2025.
With guidance withdrawn and reporting delayed, investors and market participants will be watching for the outcome of the Audit Committee’s work and any revisions the company may make to previously reported figures or to its financial outlook.
Key points
- ICON disclosed an Audit Committee-led investigation into revenue recognition for fiscal 2023-2025, triggering a roughly 30% stock decline.
- Truist’s preliminary read suggests potential revenue overstatements of under 2% for 2023 and 2024; guidance for 2025 was withdrawn and reporting delayed to on or by April 30, 2026.
- Major broker reactions included a Bank of America downgrade and price-target cut, an Evercore rating suspension, and Jefferies raising concerns about backlog and cancellation trends. Sectors implicated include healthcare services and equity investors exposed to the stock.
Risks and uncertainties
- The ongoing accounting investigation creates uncertainty around the accuracy of past revenue reporting and could lead to restatements or revisions.
- Analyst downgrades and the suspension of coverage reduce the near-term visibility for investors and could increase stock volatility.
- Questions about backlog recognition and higher cancellation activity over the last four quarters introduce additional uncertainty about future revenue conversion.