Fortrea Holdings

Fortrea reported second-quarter revenue of $678 million, down 4.5% from the prior-year period, while adjusted EBITDA improved nearly 7% to roughly $59 million. Management raised its 2026 revenue and adjusted EBITDA guidance by 212 basis points and 366 basis points, respectively, at the midpoint.

Why it matters: Fortrea's book/bill ratio of 1.06 marks the fourth consecutive quarter above 1.0. This reflects Fortrea's improved commercial execution, supporting the firm's turnaround story post-spinoff. Net new business awards increased 19% in the first half of 2026, reflecting sustained commercial momentum. Revenue declined primarily due to lower pass-through costs and the impact of soft bookings from last year, but it was partially offset by service-fee growth in clinical pharmacology. Fortrea's margin expansion was driven by an 18% decrease year over year in selling, general, and administrative expenses attributed to cost actions and efficiency initiatives. We anticipate the next phase of margin expansion will be driven by project mix, operating leverage, and volume rather than pure cost cutting.

The bottom line: We raised narrow-moat Fortrea's fair value estimate to $13.50 per share from $12.80 to account for stronger near-term performance. Shares are currently trading about 43% above our fair value estimate. While we forecast Fortrea's revenue growth will climb to the mid-single digits over the next few years as it focuses on its recovery plan and wins more projects, we think the market is pricing in a stronger turnaround trajectory. We maintain our High Uncertainty Rating, reflecting ongoing execution risks related to the post-spin turnaround and recent leadership changes. Incoming CFO Jason Knoblauch is unable to assume the role amid a restrictive covenant dispute with his former employer. Fortrea board member David Smith (former CFO at Charles River Laboratories) is serving as interim CFO.

For additional details on the CRO/CDMO industry, please view our special report, "Strong Tailwinds, Narrow Moats Position CROs for Healthy Growth," and our Industry Landscape, "Contract Research Organizations & Contract Development and Manufacturing Organizations."

We maintain narrow-moat Fortrea's fair value estimate of $13.50 per share.

Management raised its 2026 revenue and adjusted EBITDA guidance by 212 basis points and 366 basis points, respectively, at the midpoint. We forecast 2026 revenue of $2.66 billion, representing a decline of about 2% year over year. Revenue decline is attributed to lower pass-through costs and the impact of soft bookings from last year.

Labcorp announced the spinoff of its contract research organization business in July 2022, and some customers became hesitant to book new business, leading to a slowdown in new requests for proposals. Customers had concerns about the uncertainty surrounding the spinoff, including who would lead Fortrea and how it would proceed. Management referred to this disruption as their "spin year," and we were skeptical that Fortrea would be able to quickly recover from the negative impact of this "spin year." Some of Fortrea's customers deferred their work while others took their new business to competitors, and we believe it will take a few years for Fortrea to recoup the revenue from these lost opportunities. Anshul Thakral became Fortrea’s new CEO in August 2025, succeeding interim CEO Peter Neupert. After the spinoff, Fortrea's win rates were stable with existing large pharma and biotech clients, but declined among new biotech customers, echoing pre-Labcorp spinoff challenges tied to uncertainty around new leadership.

Fortrea's management team recognizes that its current margins are not consistent with industry norms. The company’s average historical operating margin between 2020 and 2022 was 5.4%, below Fortrea's peer group average of close to 16%. Between 2023 and 2025, Fortrea's average operating margin was only negative 1%. Management remains focused on optimizing its cost structure and expanding margins. The company met its exit targets for the transition services agreement with Labcorp, laying the foundation for a near-term reduction in selling, general, and administrative expenses. Additionally, Fortrea has implemented a restructuring program, which will further reduce its operating expenses.

Management's 2026 revenue outlook of a 2.5% decline at the midpoint suggests near-term challenges as the firm focuses on its turnaround efforts. Fortrea’s performance in 2026 will be negatively affected by many of its prespin projects, which are late in their lifecycle and have less revenue and profitability than previously expected. We forecast Fortrea's revenue growth will climb to the midsingle digits over our 10-year forecast period as it focuses on its recovery plan and wins more projects, which will convert to revenue over the next couple of years.

We award Fortrea a narrow Morningstar Economic Moat Rating due to its significant late-stage clinical trial exposure, regulatory expertise, and strong client relationships, which are supported by intangible assets and high switching costs. We believe exposure to late-stage clinical trials is crucial for moats in the CRO space as late-stage trials are larger in scope, more complex, often multinational, and have greater risks of failure, which enforce high switching costs.

As more complex clinical trials involving novel therapeutics provide room for differentiation, CROs like Fortrea leverage their expertise to shorten the clinical trial time while ensuring accuracy and precision for their clients. The drug development process is quite lengthy, as the entire process from discovery to registration with the US Food and Drug Administration takes 10-15 years for a typical drug, and the average length of time from the start of clinical testing to marketing is 7.5 years. Drugs typically have a 20-year patent lifespan, which begins at discovery. Speed matters because clinical trials consume a significant portion of a drug's patent-protected life before generics can enter, so faster, higher-quality execution translates directly into commercial value for biopharma sponsors.

The speed and quality of clinical trials are essential since late-stage trials are expensive and the stakes for a successful outcome are high. Biopharma companies need a CRO not only with strong technical expertise in specific disease areas, but also with knowledge of government relations, regulations, and even local country cultures, as most clinical trials are multinational. The scope of clinical trials is multinational, which emphasizes the need for a global infrastructure and extensive knowledge of global regulations. Rather than carrying out a clinical trial in one geography and securing one regulatory approval before moving on to trials and approvals in other countries, biopharma customers tend to initiate large, multinational late-phase trials for promising therapies to expedite the process of bringing a drug to market on a global scale. Fortrea helps its customers by running trials across more than 20 therapeutic areas across every phase of the development process, from clinical pharmacology to phase 4 studies conducted after regulatory approval.

Biopharma clients choose top-tier CROs to run their clinical trials for their intangible assets, reputation, and long-standing partnerships. Clinical trial outsourcing penetration has steadily risen over the past two decades, and we expect it to continue growing as trials become more complex with novel therapeutics.

Fortrea serves a diverse customer base spanning large pharma, biotechnology, and medical device firms, working with clients as a functional-service provider, full-service provider, and through hybrid models. Small and midsize biotech companies lack the capacity to run trials in-house and typically consolidate work with one trusted full-service CRO, while large pharmaceutical firms often split work across a handful of CROs, frequently on a functional-service basis. This dynamic tends to show up in Fortrea's bookings trends over time: maintained book/bill ratios above 1.0 times signal healthy demand and reinforce the durability of client relationships once a trial relationship is established.

Biopharma customers are very reluctant to switch to a different CRO once late-stage clinical trials begin, since it is difficult and costly in terms of time and expense to switch, as this would create a monthslong delay in the clinical development timeline and reduce precious patent-protected time if the drug proves successful and receives regulatory approval. Additionally, companies typically stay with their selected CRO throughout the drug’s lifetime for the continued study and development of additional indications, such as expanding a drug to patients of different age groups or evaluating booster/combination therapies. These switching costs are also supported by familiarity, in which clients prefer the continuity of working with the same trusted CRO since it has expertise concerning the clients' needs, systems, and methods.

We also appreciate Fortrea’s clinical pharmacology business and the value it provides to customers. Fortrea’s capabilities in this business support early-phase studies by conducting phase 1b hybrid studies that move from normal healthy volunteers into patient populations, providing early insights into pharmacodynamics and signals of therapeutic effectiveness. Fortrea has developed a multinational infrastructure of phase 1 facilities in both the US and the UK This infrastructure is part of an integrated platform designed to enable consistent execution of complex early-phase clinical trials through project management, comprehensive monitoring, pharmacokinetic analysis, and biometrics.

Additionally, Fortrea offers a suite of decentralized clinical trial capabilities, which allows it to be well-positioned to carry out next-generation trials. Decentralized, or remote trials, have seen increased adoption due to the covid pandemic. Biotechnology and pharmaceutical companies are encouraging regulatory agencies to continue building out a framework for evaluating decentralized clinical trials and real-world evidence for the use in regulatory decisions, so we appreciate that Fortrea has invested in decentralized technologies to keep up with customer demand for hybrid trials. Fortrea also has integrated technology and artificial intelligence within its clinic scheduling process to optimize the utilization of bedspace and has implemented bedside data capture technology.

Fortrea is poised to benefit from steadily increasing levels of outsourced clinical trials and complex novel therapeutics, such as biologics and gene therapies.

Fortrea has extensive experience across 20 therapeutic areas across every phase of the development from clinical pharmacology to phase 4 studies conducted after approval.

Fortrea has a large global footprint with operations in nearly 100 countries, which is beneficial when running late-stage, multinational clinical trials.

Fortrea's margin improvement depends on disciplined cost actions while winning new business, and any operational challenges could delay its recovery.

Significant pullbacks to biotech funding or declines in outsourcing penetration rates could have a material impact on Fortrea's growth.

Fortrea could fail to innovate and keep an edge over regional and global CRO competitors, especially as data and analytics play an increasing role in clinical development.