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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 likely to grow in the coming quarters, backed by the company’s RMS and DSA segments. The unit continues to benefit from broad-based growth in all geographic regions for small research models. The CRADL initiative is contributing to the growth rate. A stable solvent balance sheet buoys optimism.
However, the company’s operations are subject to uncertain impacts of macroeconomic conditions and forex woes.
In the past year, this Zacks Rank #3 (Hold) stock has declined 8.1% compared with an 2.2% fall of the industry and a 22.8% rise of the S&P 500 composite.
Operating as a full-service, early-stage contract research organization, Charles River has a market capitalization of $10.95 billion. The company has an earnings yield of 5.13% compared with the industry’s 0.32% yield. CRL surpassed estimates in all the trailing four quarters, delivering an average earnings surprise of 8.43%.
Let’s delve deeper.
Upsides
DSA Arm Continues to Thrive: At present, Charles River is the largest provider of outsourced drug discovery, non-clinical development and regulated safety testing services worldwide. The company is gaining from its extensive expertise in the discovery of preclinical candidates and in the design, execution, and reporting of safety assessment studies for numerous types of compounds, including cell and gene therapies and small- and large-molecule pharmaceuticals.
In the third quarter, organic revenue growth of 5.3% was mainly driven by broad-based growth in the Safety Assessment business on contributions from base pricing and study volume. The DSA backlog dropped to $2.6 billion in the third quarter from $2.8 billion at the end of the second quarter. Our estimate represents 7.4% revenue growth in the 2022-2025 period.
Strategic Acquisitions Drive Growth: Charles River broadens the scope of its products and services across the drug discovery and early-stage development continuum through focused acquisitions. Within DSA, the Retrogenix (an early-stage contract research organization (CRO)) acquisition of 2021 — with its proprietary cell microarray technology and off-target screening services — is contributing to the company’s top line.
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In June 2021, Charles River acquired Vigene Biosciences — a premier, gene therapy contract development and manufacturing organization (CDMO) providing viral vector-based gene delivery solutions. Within RMS, the company acquired Explora Biolabs in April 2022. San Diego-based Explora complements the company’s existing Insourcing Solutions business, specifically its CRADL footprint and offers incremental opportunities to partner with an emerging client base.
Stable Solvency Structure: Charles River exited Q3 2023 with cash and cash equivalents of $157 million compared with $200 million at the end of the second quarter. Total debt was $2.51 billion compared with $2.68 billion at the end of the second quarter. Although the third quarter’s total debt was higher than the corresponding cash and cash equivalent level, the company has no short-term payable debt on its balance sheet. This is good news in terms of the company’s solvency position, particularly during the time of economic downturn.
At the end of the third quarter, total debt to capital of 43.2% stood at a moderately high level. However, it represented a marginal drop from 45.1% at the end of the second quarter. The company’s interest coverage figure was 5.5%, lower than the sequentially last quarter’s 6.4%.
Downsides
Foreign Exchange Translation Impacts Sales: Foreign exchange is 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 been constantly hampering the company’s performance in the international markets. Going by our model, the impact of foreign currency translation is projected to lower reported revenue growth by 0.5% in 2023.
Macroeconomic Condition: A significant chunk of Charles River’s RMS and DSA revenues is generated in China. Any trade policy-related conflict between the United States and China might accordingly hamper the company’s business developments in this region. Further, the Manufacturing Solutions segment is experiencing softness across the broader end markets, which, according to the company, is due to a post-COVID slowdown from biopharma manufacturers, CDMOs and their suppliers. These market conditions started to impact the Microbial Solutions business more in the third quarter of 2023.
Estimate Trend
The Zacks Consensus Estimate for CRL’s earnings has moved up from $10.49 to $10.58 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $4.10 billion, suggesting a 3.2% increase from the year-ago reported number.
Haemonetics’ stock has increased 8.7% in the past year. Earnings estimates for Haemonetics have remained constant at $3.89 in 2023 and at $4.15 in 2024 in the past 30 days.
HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 16.1%. In the last reported quarter, it posted an earnings surprise of 5.3%.
Estimates for DaVita’s 2023 earnings per share have remained constant at $8.07 in the past 30 days. Shares of the company have increased 36.5% in the past year compared with the industry’s rise of 10%.
DVA’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.6%. In the last reported quarter, it delivered an average earnings surprise of 48.4%.
Estimates for HealthEquity’s 2023 earnings per share have increased from $2.03 to $2.15 in the past 30 days. Shares of the company have increased 12.1% in the past year against the industry’s 2.1% fall.
HQY’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 16.5%. In the last reported quarter, it delivered an average earnings surprise of 22.5%.
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Here's Why You Should Retain Charles River (CRL) Stock Now
Charles River Laboratories International, Inc. (CRL - Free Report) is likely to grow in the coming quarters, backed by the company’s RMS and DSA segments. The unit continues to benefit from broad-based growth in all geographic regions for small research models. The CRADL initiative is contributing to the growth rate. A stable solvent balance sheet buoys optimism.
However, the company’s operations are subject to uncertain impacts of macroeconomic conditions and forex woes.
In the past year, this Zacks Rank #3 (Hold) stock has declined 8.1% compared with an 2.2% fall of the industry and a 22.8% rise of the S&P 500 composite.
Operating as a full-service, early-stage contract research organization, Charles River has a market capitalization of $10.95 billion. The company has an earnings yield of 5.13% compared with the industry’s 0.32% yield. CRL surpassed estimates in all the trailing four quarters, delivering an average earnings surprise of 8.43%.
Let’s delve deeper.
Upsides
DSA Arm Continues to Thrive: At present, Charles River is the largest provider of outsourced drug discovery, non-clinical development and regulated safety testing services worldwide. The company is gaining from its extensive expertise in the discovery of preclinical candidates and in the design, execution, and reporting of safety assessment studies for numerous types of compounds, including cell and gene therapies and small- and large-molecule pharmaceuticals.
In the third quarter, organic revenue growth of 5.3% was mainly driven by broad-based growth in the Safety Assessment business on contributions from base pricing and study volume. The DSA backlog dropped to $2.6 billion in the third quarter from $2.8 billion at the end of the second quarter. Our estimate represents 7.4% revenue growth in the 2022-2025 period.
Strategic Acquisitions Drive Growth: Charles River broadens the scope of its products and services across the drug discovery and early-stage development continuum through focused acquisitions. Within DSA, the Retrogenix (an early-stage contract research organization (CRO)) acquisition of 2021 — with its proprietary cell microarray technology and off-target screening services — is contributing to the company’s top line.
In June 2021, Charles River acquired Vigene Biosciences — a premier, gene therapy contract development and manufacturing organization (CDMO) providing viral vector-based gene delivery solutions. Within RMS, the company acquired Explora Biolabs in April 2022. San Diego-based Explora complements the company’s existing Insourcing Solutions business, specifically its CRADL footprint and offers incremental opportunities to partner with an emerging client base.
Stable Solvency Structure: Charles River exited Q3 2023 with cash and cash equivalents of $157 million compared with $200 million at the end of the second quarter. Total debt was $2.51 billion compared with $2.68 billion at the end of the second quarter. Although the third quarter’s total debt was higher than the corresponding cash and cash equivalent level, the company has no short-term payable debt on its balance sheet. This is good news in terms of the company’s solvency position, particularly during the time of economic downturn.
At the end of the third quarter, total debt to capital of 43.2% stood at a moderately high level. However, it represented a marginal drop from 45.1% at the end of the second quarter. The company’s interest coverage figure was 5.5%, lower than the sequentially last quarter’s 6.4%.
Downsides
Foreign Exchange Translation Impacts Sales: Foreign exchange is 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 been constantly hampering the company’s performance in the international markets. Going by our model, the impact of foreign currency translation is projected to lower reported revenue growth by 0.5% in 2023.
Macroeconomic Condition: A significant chunk of Charles River’s RMS and DSA revenues is generated in China. Any trade policy-related conflict between the United States and China might accordingly hamper the company’s business developments in this region. Further, the Manufacturing Solutions segment is experiencing softness across the broader end markets, which, according to the company, is due to a post-COVID slowdown from biopharma manufacturers, CDMOs and their suppliers. These market conditions started to impact the Microbial Solutions business more in the third quarter of 2023.
Estimate Trend
The Zacks Consensus Estimate for CRL’s earnings has moved up from $10.49 to $10.58 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $4.10 billion, suggesting a 3.2% increase from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics (HAE - Free Report) , DaVita (DVA - Free Report) and HealthEquity (HQY - Free Report) . Haemonetics and HealthEquity each carry a Zacks Rank #2 (Buy), and DaVita sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Haemonetics’ stock has increased 8.7% in the past year. Earnings estimates for Haemonetics have remained constant at $3.89 in 2023 and at $4.15 in 2024 in the past 30 days.
HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 16.1%. In the last reported quarter, it posted an earnings surprise of 5.3%.
Estimates for DaVita’s 2023 earnings per share have remained constant at $8.07 in the past 30 days. Shares of the company have increased 36.5% in the past year compared with the industry’s rise of 10%.
DVA’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.6%. In the last reported quarter, it delivered an average earnings surprise of 48.4%.
Estimates for HealthEquity’s 2023 earnings per share have increased from $2.03 to $2.15 in the past 30 days. Shares of the company have increased 12.1% in the past year against the industry’s 2.1% fall.
HQY’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 16.5%. In the last reported quarter, it delivered an average earnings surprise of 22.5%.