Medpace Holdings, Inc. (MEDP) stock intrinsic value fair value estimate & owner earnings analysis

Medpace is a contract research organization. Drug and medical-device developers hire it to run clinical trials, from study design and monitoring through data management and regulatory filings. About 99% of its 2025 revenue was booked through its U.S. contracting entity, although the trials themselves run around the world. The key sensitivity is who the customers are: in 2025, 82% of net revenue came from small biopharmaceutical companies and 13% from mid-sized ones, which may have limited access to capital, and most contracts can be cancelled on 30 days' notice. How we measured earnings. We look at cash the business generates for owners after subtracting stock-based compensation and the maintenance portion of capital spending, and after removing swings in working capital. Medpace collects large up-front fees, so its advanced billings (customer deposits) rose from $710.6 million to $854.4 million in 2025. That build added $143.8 million to 2025 operating cash flow. We strip it out because it is customers paying ahead, not earnings. On this basis, owner earnings per share were $3.80 in 2021, $6.39 in 2022, $8.19 in 2023, $11.66 in 2024 and $18.14 in 2025. One accounting judgement matters. From 2021 to 2024 deferred taxes reduced operating cash flow by a combined $111.9 million, and in 2025 they added $80.8 million while the company's deferred tax asset fell from $100.4 million to $19.2 million. We treat these as timing between book and cash taxes, not earning power, and remove them when setting the starting level. That puts 2024 at about $12.50 and 2025 at about $15.40, versus $18.14 as reported. We start from the midpoint, about $13.95 per share, using 2024 and 2025 because they reflect the business at its current scale of $2.1 to $2.5 billion in revenue. Earlier years describe a much smaller company. Recent trend. In the first half of 2026, revenue was $1,413.9 million against $1,161.9 million a year earlier (up 21.7%), net income was $245.2 million against $204.9 million (up 19.7%) and operating cash flow was $313.8 million against $274.4 million. Revenue includes costs passed through to customers ($1,037.5 million of reimbursed out-of-pocket expenses in 2025), so revenue growth overstates growth in profit. Base case, $241 per share. Owner earnings per share in 2025 grew 55.5% as reported (about 23% after removing the tax timing). We assume 12% for 2026, below both. The support is contracted backlog: at the end of 2025 the company expected $1,890 to $1,910 million of backlog to convert to revenue in 2026, versus $1,620 to $1,640 million expected a year earlier, about 17% higher. We then taper growth to 9%, 7%, 6%, 5%, 4%, 3%, 3%, 2% and 2%, reaching about $23.28 per share in 2035. We credit growth for three reasons: backlog of $3,027.2 million (up 4.3% in 2025, and covering at most three years of work), net new business awards of $2,646.8 million in 2025 versus $2,230.0 million in 2024, and revenue that rose in every year from 2016 to 2025 with capital spending of only 1.2% to 3.4% of revenue, funded from the company's own cash. Growth tapers because visibility into contracted work ends about three years out. We leave out new therapeutic areas, share gains, margin expansion and share buybacks, since none is contracted or a long-proven process. After 2035 we hold earnings flat for ten more years on the strength of that decade-long record, and assume nothing beyond 2045. Bear case, $105 per share. Small and mid-sized drug developers make up 95% of net revenue, and contracts can be cancelled on 30 days' notice. We assume a funding squeeze cuts earnings per share by 10% in 2026 and another 10% in 2027, to about $11.30, where they stay through 2035 and then fade to zero over the following ten years. We also subtract $4.87 per share in year one as customers draw back the deposits that built up in 2025 ($143.8 million spread over 29.5 million shares). The company had no borrowings at year-end 2025 and $497.0 million of cash, so debt is not the risk; customer funding is. Bull case, $327 per share. If contracted conversion and awards hold up, growth is 16%, 13%, 11%, 9%, 8%, 6%, 5%, 4%, 3% and 3%, reaching about $29.34 by 2035. This is supported by 2025 net new awards being 18.7% above 2024 and first-half 2026 net income up 19.7%. Earnings then hold flat through 2045 and fade to zero over the next ten years. What would make this wrong. A sharp fall in funding for small drug developers would lead to cancellations and a reversal of customer deposits. Backlog grew only 4.3% in 2025 even as awards rose, meaning work is being completed nearly as fast as it is won. Our values do not add the $497.0 million of cash the company held at year-end 2025 as separate value, because the interest it earns is already in earnings. For 2016 to 2018 we rebuilt working capital from the individual cash-flow lines in each filing, so small items we did not capture could make those early years differ slightly. The margin-of-safety price is $150, about 38% under our base case, reflecting the dependence on smaller customers with cancellable contracts.