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Here's Why You Should Retain Charles River (CRL) Stock For Now
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Charles River Laboratories International, Inc. (CRL - Free Report) is well poised for growth backed by robust demand in the Biologics Testing Solutions and Microbial Solutions businesses. Further, strong customer uptake in the DSA arm instills optimism. However, foreign exchange fluctuations and stiff competition are major downsides.
Over the past year, shares of this Zacks Rank #3 (Hold) company have declined 7.2% compared with the 56.9% decline of the industry and 7.7% rise of the S&P 500.
The full-service, early-stage contract research organization (CRO) has a market capitalization of $12.95 billion. The company projects 14% growth for the next five years compared with the industry’s growth of 19.6%.
Let’s delve deeper.
Factors at Play
RMS Business Rebounds: In the fourth quarter, RMS revenues increased 13.3% organically year over year despite the impact of the RMS Japan divestiture. The RMS arm’s results reflect robust demand for research models, particularly in China, and broad-based growth across Research Model Services, which the company experienced all year round. According to Charles River, demand in China was exceptionally strong through 2021 on the resurgence of biomedical research activities following China’s COVID-led shutdowns in 2020. Further, a shift in demand toward a mid-tier biopharma and CRO client base along with the company’s expanded product offerings contributed to growth within RMS.
DSA Arm Continues to Thrive: This segment reported 6.7% organic revenue growth in the fourth quarter of 2022. The DSA segment continued to perform well, with strong performances in early discovery and CNS services. The Safety Assessment business continued to perform well, registering strong bookings and proposal volume in the fourth quarter. Per management, clients are opting to book their safety assessment studies further in advance, allowing them to begin working with the company as soon as their molecules are available.
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Strategic Acquisitions Drive Growth: Charles River broadens the scope of the products and services across the drug discovery and early-stage development continuum through focused acquisitions. Citoxlab (acquired in 2019) and HemaCare (taken over in 2020) are an integral part of the company’s growth strategy of successfully expanding the company’s portfolio and broadening its geographic footprint. According to Charles River, the acquisition of Citoxlab enhanced its position as a leading global early-stage CRO. The acquisition of HemaCare enhances its ability to provide a comprehensive cell therapy solution from discovery through commercialization.
Downsides
Foreign Exchange Translation Impacts Sales: Foreign exchange is a major headwind for Charles River due to a considerable percentage of its revenues coming 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.
Competitive Landscape: Charles River competes in the marketplace based on its therapeutic and scientific expertise in early-stage drug research, quality, reputation, flexibility, responsiveness, pricing, innovation and global capabilities. The company primarily faces a broad range of competitors of different sizes and capabilities in each business segment.
Estimate Trends
Charles River has been witnessing a positive earnings estimate revision trend for the current year. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 1.6% north to $11.64.
The Zacks Consensus Estimate for its first-quarter 2022 revenues is pegged at $918.9 million, suggesting 11.5% growth from the year-ago reported number.
Key Picks
Few better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .
McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 48.6% compared with the industry’s 9.2% growth in the past year.
AMN Healthcare, carrying a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.
AMN Healthcare has outperformed its industry over the past year. AMN has gained 33.2% versus the 56.9% industry decline.
Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.
Bio-Rad has an earnings yield of 2.3%, which compares favorably with the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.
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Here's Why You Should Retain Charles River (CRL) Stock For Now
Charles River Laboratories International, Inc. (CRL - Free Report) is well poised for growth backed by robust demand in the Biologics Testing Solutions and Microbial Solutions businesses. Further, strong customer uptake in the DSA arm instills optimism. However, foreign exchange fluctuations and stiff competition are major downsides.
Over the past year, shares of this Zacks Rank #3 (Hold) company have declined 7.2% compared with the 56.9% decline of the industry and 7.7% rise of the S&P 500.
The full-service, early-stage contract research organization (CRO) has a market capitalization of $12.95 billion. The company projects 14% growth for the next five years compared with the industry’s growth of 19.6%.
Let’s delve deeper.
Factors at Play
RMS Business Rebounds: In the fourth quarter, RMS revenues increased 13.3% organically year over year despite the impact of the RMS Japan divestiture. The RMS arm’s results reflect robust demand for research models, particularly in China, and broad-based growth across Research Model Services, which the company experienced all year round. According to Charles River, demand in China was exceptionally strong through 2021 on the resurgence of biomedical research activities following China’s COVID-led shutdowns in 2020. Further, a shift in demand toward a mid-tier biopharma and CRO client base along with the company’s expanded product offerings contributed to growth within RMS.
DSA Arm Continues to Thrive: This segment reported 6.7% organic revenue growth in the fourth quarter of 2022. The DSA segment continued to perform well, with strong performances in early discovery and CNS services. The Safety Assessment business continued to perform well, registering strong bookings and proposal volume in the fourth quarter. Per management, clients are opting to book their safety assessment studies further in advance, allowing them to begin working with the company as soon as their molecules are available.
Strategic Acquisitions Drive Growth: Charles River broadens the scope of the products and services across the drug discovery and early-stage development continuum through focused acquisitions. Citoxlab (acquired in 2019) and HemaCare (taken over in 2020) are an integral part of the company’s growth strategy of successfully expanding the company’s portfolio and broadening its geographic footprint. According to Charles River, the acquisition of Citoxlab enhanced its position as a leading global early-stage CRO. The acquisition of HemaCare enhances its ability to provide a comprehensive cell therapy solution from discovery through commercialization.
Downsides
Foreign Exchange Translation Impacts Sales: Foreign exchange is a major headwind for Charles River due to a considerable percentage of its revenues coming 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.
Competitive Landscape: Charles River competes in the marketplace based on its therapeutic and scientific expertise in early-stage drug research, quality, reputation, flexibility, responsiveness, pricing, innovation and global capabilities. The company primarily faces a broad range of competitors of different sizes and capabilities in each business segment.
Estimate Trends
Charles River has been witnessing a positive earnings estimate revision trend for the current year. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 1.6% north to $11.64.
The Zacks Consensus Estimate for its first-quarter 2022 revenues is pegged at $918.9 million, suggesting 11.5% growth from the year-ago reported number.
Key Picks
Few better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .
McKesson, carrying a Zacks Rank #2 (Buy), reported third-quarter fiscal 2022 adjusted earnings per share (EPS) of $6.15, which beat the Zacks Consensus Estimate of $5.38 by 14.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 48.6% compared with the industry’s 9.2% growth in the past year.
AMN Healthcare, carrying a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.
AMN Healthcare has outperformed its industry over the past year. AMN has gained 33.2% versus the 56.9% industry decline.
Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.
Bio-Rad has an earnings yield of 2.3%, which compares favorably with the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.