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Here's Why You Should Retain Charles River (CRL) Stock Now
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Charles River Laboratories International, Inc. (CRL - Free Report) is well-poised for growth in the coming quarters, backed by robust performance of the Discovery and Safety Assessment (DSA) and Research Models and Services (RMS) segments. Solid first-quarter 2023 results instill investors’ optimism. However, stiff competition and foreign exchange headwinds do not bode well for Charles River.
In the past year, this Zacks Rank #3 (Hold) stock has lost 2.3% compared with 12.1% decline of the industry it belong to. However, S&P 500 composite registered a 19.8% rise in the same time frame.
Operating as a full-service, early-stage contract research organization, Charles River has a market capitalization of $10.62 billion. The company has an earnings yield of 4.97% against the industry’s (4.12%). CRL surpassed estimates in all the trailing four quarters, delivering an average earnings surprise of 5.39%.
Let’s delve deeper.
Growth Catalyst
Q1 Upsides: Charles River exited the first quarter of 2023 with better-than-expected earnings and revenues. Revenues improved 12.6% year over year with 15.4% organic revenue growth. This was driven by strong DSA performance and solid RMS growth. Also, global biopharmaceutical companies, small and midsized biotechs, and academic and government accounts made significant contributions to the growth rate.
CRL registered sound growth in small research models, research model services and the Cell Solutions business. Based on strong-first quarter performance, Charles River narrowed its guidance for organic revenue growth and adjusted earnings per share.
RMS Business Rebounds: In the first quarter, RMS revenues increased 6.8% organically year over year. This was driven by broad-based demand for small research models in all geographic regions, Research Model Services and the Cell Solutions business.
RMS growth rate was below the high single digit target for the year in China. However, management expects the metric to meaningfully improve in the second quarter as NHPs have shipped in China.
Charles River continues to expect RMS to deliver high single digit organic revenue growth in 2023. Revenue growth for small research models in North America and Europe remained strong. This wa driven by healthy volume increases in North America and continued pricing gains globally.
DSA Arm Continues to Thrive: This segment reported 23.6% organic revenue growth in the first quarter of 2023. Broad-based growth in the Safety Assessment business on favorable base pricing with NHP pass-throughs and higher study volume resulted in this uptick. The Discovery Business Services’ growth rate also improved in the quarter.
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DSA backlog decreased modestly on a sequential basis which is reflective of the normalization of booking and proposal activity. CRL experienced this at the end of 2022 and in first-quarter 2023.
Downsides
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 primarily faces a broad range of competitors of different sizes and capabilities in each of its three businesses segments.
Foreign Exchange Translation Affects Sales: Foreign exchange is a major headwind for CRL as a considerable percentage of its revenues comes from outside the United States. Strengthening of Euro and some other developed market currencies has been constantly hampering the company’s performance in international markets. The impact of foreign currency translation reduced reported revenue growth by 2.1% in the first quarter.
Estimate Trend
Charles River has been witnessing a positive estimate revision trend for 2023. The Zacks Consensus Estimate for its earnings has moved 1.2% north to $10.32 per share in the past 90 days.
The Zacks Consensus Estimate for CRL’s 2023 revenues is pegged at $4.11 billion, suggesting a 3.4% decline from the year-ago reported number.
Alcon has an estimated long-term growth rate of 14.9%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 8.85%.
ALC’s shares have gained 21.1% year to date compared with the industry’s 18.5% growth.
Perrigo’s earnings are expected to improve 24.6% in 2023. Strong momentum is likely to continue in 2024 as well. PRGO’s earnings surpassed estimates in two of the trailing four quarters and missed twice, delivering an average negative surprise of 0.79%.
PRGO’s shares have lost 13.5% year to date against the industry’s 18.8% decline.
Hologic has an estimated earnings growth rate of 4.1% for fiscal 2024. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 27.32%.
HOLX’s shares have risen 17.3% year to date compared with the industry’s 18.5% growth.
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Here's Why You Should Retain Charles River (CRL) Stock Now
Charles River Laboratories International, Inc. (CRL - Free Report) is well-poised for growth in the coming quarters, backed by robust performance of the Discovery and Safety Assessment (DSA) and Research Models and Services (RMS) segments. Solid first-quarter 2023 results instill investors’ optimism. However, stiff competition and foreign exchange headwinds do not bode well for Charles River.
In the past year, this Zacks Rank #3 (Hold) stock has lost 2.3% compared with 12.1% decline of the industry it belong to. However, S&P 500 composite registered a 19.8% rise in the same time frame.
Operating as a full-service, early-stage contract research organization, Charles River has a market capitalization of $10.62 billion. The company has an earnings yield of 4.97% against the industry’s (4.12%). CRL surpassed estimates in all the trailing four quarters, delivering an average earnings surprise of 5.39%.
Let’s delve deeper.
Growth Catalyst
Q1 Upsides: Charles River exited the first quarter of 2023 with better-than-expected earnings and revenues. Revenues improved 12.6% year over year with 15.4% organic revenue growth. This was driven by strong DSA performance and solid RMS growth. Also, global biopharmaceutical companies, small and midsized biotechs, and academic and government accounts made significant contributions to the growth rate.
CRL registered sound growth in small research models, research model services and the Cell Solutions business. Based on strong-first quarter performance, Charles River narrowed its guidance for organic revenue growth and adjusted earnings per share.
RMS Business Rebounds: In the first quarter, RMS revenues increased 6.8% organically year over year. This was driven by broad-based demand for small research models in all geographic regions, Research Model Services and the Cell Solutions business.
RMS growth rate was below the high single digit target for the year in China. However, management expects the metric to meaningfully improve in the second quarter as NHPs have shipped in China.
Charles River continues to expect RMS to deliver high single digit organic revenue growth in 2023. Revenue growth for small research models in North America and Europe remained strong. This wa driven by healthy volume increases in North America and continued pricing gains globally.
DSA Arm Continues to Thrive: This segment reported 23.6% organic revenue growth in the first quarter of 2023. Broad-based growth in the Safety Assessment business on favorable base pricing with NHP pass-throughs and higher study volume resulted in this uptick. The Discovery Business Services’ growth rate also improved in the quarter.
DSA backlog decreased modestly on a sequential basis which is reflective of the normalization of booking and proposal activity. CRL experienced this at the end of 2022 and in first-quarter 2023.
Downsides
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 primarily faces a broad range of competitors of different sizes and capabilities in each of its three businesses segments.
Foreign Exchange Translation Affects Sales: Foreign exchange is a major headwind for CRL as a considerable percentage of its revenues comes from outside the United States. Strengthening of Euro and some other developed market currencies has been constantly hampering the company’s performance in international markets. The impact of foreign currency translation reduced reported revenue growth by 2.1% in the first quarter.
Estimate Trend
Charles River has been witnessing a positive estimate revision trend for 2023. The Zacks Consensus Estimate for its earnings has moved 1.2% north to $10.32 per share in the past 90 days.
The Zacks Consensus Estimate for CRL’s 2023 revenues is pegged at $4.11 billion, suggesting a 3.4% decline from the year-ago reported number.
Key Picks
Some better-ranked stocks from the broader medical space are Alcon (ALC - Free Report) , Perrigo Company (PRGO - Free Report) and Hologic (HOLX - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Alcon has an estimated long-term growth rate of 14.9%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 8.85%.
ALC’s shares have gained 21.1% year to date compared with the industry’s 18.5% growth.
Perrigo’s earnings are expected to improve 24.6% in 2023. Strong momentum is likely to continue in 2024 as well. PRGO’s earnings surpassed estimates in two of the trailing four quarters and missed twice, delivering an average negative surprise of 0.79%.
PRGO’s shares have lost 13.5% year to date against the industry’s 18.8% decline.
Hologic has an estimated earnings growth rate of 4.1% for fiscal 2024. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 27.32%.
HOLX’s shares have risen 17.3% year to date compared with the industry’s 18.5% growth.