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Charles River (CRL) Banks on RMS Growth Amid Competition

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Charles River Laboratories’ (CRL - Free Report) Research Models and Services (RMS) arm continues to gain from the CRADL initiative. Yet, destocking efforts are denting growth in the Manufacturing Solutions business. The stock carries a Zacks Rank #3 (Hold) currently.

Within Charles River’s RMS segment, the company is witnessing strong growth in the insourcing solutions (IS) business led by the CRADL (Charles River Accelerator and Development Labs) initiative. These days, clients are increasingly adopting CRADL’s flexible model to access laboratory space without having to invest in internal infrastructure. During the first quarter of 2024, the company signed new contracts for its legacy IS Vivarium management solutions and noted that the CRADL growth rate is expected to accelerate during 2024.

According to the company, despite facing macroeconomic challenges in China, RMS demand has been less affected than other life science sectors. Further, in late 2023, the company gained a 90% controlling interest in Noveprim, an NHP provider of Mauritius. Noveprim’s sale of NHP to third-party external clients strongly contributed to RMS revenues in the first quarter. Charles River expects this acquisition to contribute 30 cents to its 2024 adjusted profit.

Within Discovery and Safety Assessment (DSA) 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 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.

The demand for these services is driven by the needs of large global pharmaceutical companies that continue to transition to an outsourced drug development model, in addition to mid-size and emerging biotechnology companies, industrial and agrochemical companies and non-governmental organizations that rely on outsourcing.

On the flip side, 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, contract development and manufacturing organizations (CDMOs) and their suppliers. Clients, particularly CDMOs, are cutting costs as part of their COVID-19 destocking efforts and reduction of testing volumes.

According to Charles River, in Microbial Solutions, the global biopharma demand environment is affecting the Endosafe endotoxin testing product line as clients are reducing both testing volumes and investments in new instruments. These market conditions more noticeably impacted the business in 2023. At the end of the first quarter of 2024 too, the company recognized similar destocking activities. However, Charles River assumes these destocking activities are now more or less complete.

Further, 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. Its RMS business has five main competitors, of which one is a government-funded, not-for-profit entity, one is privately held in Europe, and three are privately held in the United States. DSA has three main competitors — two are public companies in China and one is a public company in Europe. This fiercely competitive global market impacts the company’s market capitalization scenario.

Key Picks

Some better-ranked stocks in the broader medical space are Hims & Hers Health (HIMS - Free Report) , Medpace (MEDP - Free Report) and ResMed (RMD - Free Report) . While Hims & Hers Health and Medpace each sport a Zacks Rank #1 (Strong Buy), ResMed carries a Zacks Rank #2 (Buy) at present.  You can see the complete list of today’s Zacks Rank #1 stocks here.

Hims & Hers Heath stock has surged 75.3% in the past year. Estimates for the company’s earnings have risen from 10 cents to 18 cents for 2024 and from 23 cents to 32 cents for 2025 in the past 30 days.

HIMS’ earnings beat estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 79.2%. In the last reported quarter, it posted an earnings surprise of a staggering 150%.

Estimates for Medpace’s 2024 earnings per share have moved up to $11.29 from $10.80 in the past 30 days. Shares of the company have surged 93.2% in the past year compared with the industry’s 8.7% growth.

MEDP’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 12.8%. In the last reported quarter, it delivered an earnings surprise of 30.6%.

Estimates for ResMed’s fiscal 2024 earnings per share have moved to $7.64 from $7.43 in the past 30 days. Shares of the company have decreased 2.4% in the past year against the industry’s rise of 4.8%.

RMD’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 2.8%. In the last reported quarter, it delivered an earnings surprise of 10.9%.

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