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Charles River (CRL) at a 52-Week High: What's Driving It?

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Charles River Laboratories International, Inc. (CRL - Free Report) reported a new 52-week high of $423.63 on Aug 18, before closing the session marginally lower at $416.08.

The company’s shares have charted a solid trajectory in recent times, appreciating 93.4% over the past year, ahead of the 39% decline of the industry it belongs to and 33.4% surge of the S&P 500 composite.

Over the past five years, the company registered earnings growth of 15.5% compared with the industry’s 14.8% rise and way ahead of the S&P 500’s 2.8% increase. The company’s long-term expected growth rate of 14% is below the industry’s growth projection of 18.1% and exceeds the S&P 500’s projected 11.3% increase.

Charles River ended the second quarter of 2021 with better-than-expected results. The company is well poised for growth in the coming quarters backed by solid performance across all three reporting segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA) and Manufacturing Support. A good solvency position bodes well for the stock. Expansion of both margins is encouraging as well.

Zacks Investment Research


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Let’s delve deeper.

Key Drivers

Q2 Upsides: Charles River exited the second quarter of 2021 with better-than-expected revenues and earnings. The second quarter was highlighted by 24.1% organic revenue growth, driven by double-digit growth across all three segments. Robust demand in the Biologics Testing Solutions and Microbial Solutions businesses drove Manufacturing Solutions revenues in the reported quarter. Expansion of both margins is encouraging as well. The company has raised its 2021 guidance based on strong second-quarter performance and expectations of robust client demand through the remainder of the year.

RMS Business Rebounds: We are optimistic about the RMS segment that registered 44.5% revenue growth organically year over year in the second quarter despite the COVID-related business disruption in 2020. Organic revenue growth was driven by robust demand for research models across all client segments and geographic regions, particularly in China as well as higher revenues from research model services. COVID-led favorable year-over-year comparison contributed nearly 35% on a reported basis and 33.4% on an organic basis to RMS revenue growth in the second quarter.

DSA Arm Continues to Thrive: The market is upbeat about Charles River’s DSA arm, which reported 18.1% organic revenue growth in the second quarter of 2021 on broad-based demand for both Discovery and Safety Assessment. The Safety Assessment business continued to perform exceptionally well, reflecting robust demand from both biotech and global biopharma clients. Bookings and proposal volume reached record highs in the second quarter, with strength across all regions and major service areas.

Stable Solvency Structure: Charles River exited the second quarter of 2021 with cash and cash equivalents of $222.9 million compared with $465 million at the end of the first quarter of 2021. Meanwhile, the quarter’s total debt of $2.73 billion was much higher than the cash and cash equivalent level. However, we may note that the company has short-term payable debt of $3 million on its balance sheet, which is indicative of good news in terms of the company’s solvency position, particularly during the time of the pandemic, when it is majorly facing manufacturing and supply halt globally.

Downsides

Cell Supply Business Faces Challenge: Charles River’s cell supply business faced issues related to donor access in the second quarter. The company particularly noted that revenue growth for HemaCare and Cellero remained below the targeted level in the reported quarter due to some limitations on donor access imposed by the COVID-19 pandemic.

Competitive Landscape: Charles River competes in the marketplace on the basis of its therapeutic and scientific expertise in early-stage drug research, quality, reputation, flexibility, responsiveness, pricing, innovation and global capabilities. The company faces significant competition from a broad range of competitors of different sizes and capabilities across its RMS, DSA and Manufacturing Support segments.

Zacks Rank and Key Picks

Currently, Charles River carries a Zacks Rank #3 (Hold).

A few better ranked stocks from the Medical-Services industry include Apollo Medical Holdings, Inc. (AMEH - Free Report) , HealthEquity, Inc. (HQY - Free Report) and ICON PLC (ICLR - Free Report) .

Apollo Medical, sporting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 20%. You can see the complete list of today’s Zacks #1 Rank stocks here.

HealthEquity, which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 14.5%.

ICON, which carries a Zacks Rank #2, has a long-term earnings growth rate of 11.7%.