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Charles River (CRL) Benefits From Price Rise Amid FX Woe
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Charles River’s (CRL - Free Report) strong organic revenue growth and robust demand from biotech as well as pharmaceutical clients demonstrate the power of the company’s advanced portfolio. Yet, the global business environment continues to be challenging. The company currently carries a Zacks Rank #3 (Hold).
Charles River exited the third quarter of 2022 with better-than-expected earnings and revenues. The results highlighted more than 15% organic revenue growth, driven by strength across the DSA and Research Models and Services (RMS) business segments.
In the third quarter, RMS revenues increased 8% organically year over year, in line with the company’s high single-digit outlook for 2022. Organic revenue growth was driven by strong demand and meaningful price increases in the Research Models business in North America, as well as for Global Research Models Services, particularly Insourcing Solutions and GEMS. China too rebounded, following the impact of COVID-related restrictions in the second quarter.
RMS growth expectation trended up from low to mid-single digits banking on a combination of accelerating growth for research model services and research models. The Charles River Accelerator and Development Labs (CRADL) initiative, including the recent Explora acquisition, is a significant driver of the growth rate increase.
Charles River Laboratories International, Inc. Price
The DSA segment recorded 20.8% organic revenue growth in the third quarter of 2022. Broad-based growth in the Safety Assessment business was the principal driver behind the nearly two-fold increase in the DSA revenue growth rate from the second quarter level. The factors that led to this meaningful step-up were substantially higher study volume and continued meaningful price increases.
Study volume was a significant contributor, driven by strong demand across the Safety Assessment business for most major study types of general and specialty toxicology. Currently Charles River continues to expect mid-teens DSA organic revenue growth in 2022. DSA backlog and booking activity through the third quarter continues to support sustained growth.
Operating margin expansion and meaningful cash flow generation were the other upsides. The narrowed 2022 adjusted EPS and revenue guidance reflect improved third-quarter top-line performance.
On the flip side, a revenue decline in the CDMO business, as well as a challenging prior-year comparison for the Biologics Testing and Microbial Solutions businesses in the third quarter, dragged Manufacturing Solutions revenues down.
Headwinds associated with interest expense due to a rising interest rate environment increase concern. Margin contraction in the face of mounting costs and expenses is another downside.
Foreign exchange is also a major headwind for Charles River as a considerable percentage of its revenues comes from outside the United States. The strengthening of the euro and some other developed market currencies has constantly been hampering the company’s performance in the international markets. Charles River currently expects reported revenue growth in 2022 to reflect a 350-basis point foreign exchange headwind.
Over the past year, Charles River has been underperforming its industry. The stock has declined 39.4% compared with the industry’s 29.1% plunge.
Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are ShockWave Medical, Inc. (SWAV - Free Report) , Orthofix Medical Inc. (OFIX - Free Report) and Merit Medical System (MMSI - Free Report) .
ShockWave Medical, sporting a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.
ShockWave Medical has outperformed its industry in the past year. SWAV has gained 35% against the industry’s 32.6% decline in the past year.
Orthofix Medical, currently carrying a Zacks Rank #1 (Strong Buy), reported third-quarter 2022 adjusted EPS of 13 cents, which beat the Zacks Consensus Estimate by a stupendous 550%. Revenues of $114 million outpaced the consensus mark by 2.7%.
Orthofix Medical has an estimated growth rate of 58.97% for the next year. OFIX’s earnings surpassed estimates in the trailing three quarters and missed in one, the average being 129.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Merit Medical, currently carrying a Zacks Rank of 2, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.
Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.
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Charles River (CRL) Benefits From Price Rise Amid FX Woe
Charles River’s (CRL - Free Report) strong organic revenue growth and robust demand from biotech as well as pharmaceutical clients demonstrate the power of the company’s advanced portfolio. Yet, the global business environment continues to be challenging. The company currently carries a Zacks Rank #3 (Hold).
Charles River exited the third quarter of 2022 with better-than-expected earnings and revenues. The results highlighted more than 15% organic revenue growth, driven by strength across the DSA and Research Models and Services (RMS) business segments.
In the third quarter, RMS revenues increased 8% organically year over year, in line with the company’s high single-digit outlook for 2022. Organic revenue growth was driven by strong demand and meaningful price increases in the Research Models business in North America, as well as for Global Research Models Services, particularly Insourcing Solutions and GEMS. China too rebounded, following the impact of COVID-related restrictions in the second quarter.
RMS growth expectation trended up from low to mid-single digits banking on a combination of accelerating growth for research model services and research models. The Charles River Accelerator and Development Labs (CRADL) initiative, including the recent Explora acquisition, is a significant driver of the growth rate increase.
Charles River Laboratories International, Inc. Price
Charles River Laboratories International, Inc. price | Charles River Laboratories International, Inc. Quote
The DSA segment recorded 20.8% organic revenue growth in the third quarter of 2022. Broad-based growth in the Safety Assessment business was the principal driver behind the nearly two-fold increase in the DSA revenue growth rate from the second quarter level. The factors that led to this meaningful step-up were substantially higher study volume and continued meaningful price increases.
Study volume was a significant contributor, driven by strong demand across the Safety Assessment business for most major study types of general and specialty toxicology. Currently Charles River continues to expect mid-teens DSA organic revenue growth in 2022. DSA backlog and booking activity through the third quarter continues to support sustained growth.
Operating margin expansion and meaningful cash flow generation were the other upsides. The narrowed 2022 adjusted EPS and revenue guidance reflect improved third-quarter top-line performance.
On the flip side, a revenue decline in the CDMO business, as well as a challenging prior-year comparison for the Biologics Testing and Microbial Solutions businesses in the third quarter, dragged Manufacturing Solutions revenues down.
Headwinds associated with interest expense due to a rising interest rate environment increase concern. Margin contraction in the face of mounting costs and expenses is another downside.
Foreign exchange is also a major headwind for Charles River as a considerable percentage of its revenues comes from outside the United States. The strengthening of the euro and some other developed market currencies has constantly been hampering the company’s performance in the international markets. Charles River currently expects reported revenue growth in 2022 to reflect a 350-basis point foreign exchange headwind.
Over the past year, Charles River has been underperforming its industry. The stock has declined 39.4% compared with the industry’s 29.1% plunge.
Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are ShockWave Medical, Inc. (SWAV - Free Report) , Orthofix Medical Inc. (OFIX - Free Report) and Merit Medical System (MMSI - Free Report) .
ShockWave Medical, sporting a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.
ShockWave Medical has outperformed its industry in the past year. SWAV has gained 35% against the industry’s 32.6% decline in the past year.
Orthofix Medical, currently carrying a Zacks Rank #1 (Strong Buy), reported third-quarter 2022 adjusted EPS of 13 cents, which beat the Zacks Consensus Estimate by a stupendous 550%. Revenues of $114 million outpaced the consensus mark by 2.7%.
Orthofix Medical has an estimated growth rate of 58.97% for the next year. OFIX’s earnings surpassed estimates in the trailing three quarters and missed in one, the average being 129.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Merit Medical, currently carrying a Zacks Rank of 2, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.
Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.