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

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Charles River Lab CRL scaled to a new 52-week high of $386.17 on Jul 12, before closing the session marginally lower at $384.13.

The company’s shares have charted a solid trajectory in recent times, appreciating 104.9% over the past year against 24.5% decline of the industry it belongs to and 38.7% surge of the S&P 500 composite.

Over the past five years, the company registered earnings growth of 15.5% compared to the industry’s 15.7% rise and way ahead of the S&P 500’s 2.8% increase. The company’s long-term expected growth rate of 14% lags the industry’s growth projection of 17.7% but exceeds the S&P 500’s 10.9% increase.

At present, Charles River has three reported segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA) and Manufacturing Support. The last-reported first quarter of 2021 exhibited 13% organic revenue growth, driven by double-digit growth across all three segments. Internationally, Biomedical research returned to pre-COVID levels in China and reached greater levels in some areas.

Let’s delve deeper.

Key Drivers

RMS Business Rebounds: Following COVID-19 related business disruption in 2020, Research Models and Services segment revenues increased 14.8% organically year over year in the first quarter. Robust demand for research models in China was the primary growth driver. Further, growing demand for research model services, including GEMS and CRADL initiatives, drives market optimism.

DSA Arm Continues to Thrive: Market is also upbeat about the robust performance within the Discovery and Safety Assessment arm. This segment reported 11.6% organic revenue growth in the last-reported quarter banking on broad-based demand for both Discovery and Safety Assessment. Bookings and proposal volume reached record highs. Bookings substantially exceeded the company’s target.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Strategic Acquisitions: Charles River’s prior acquisitions of Citoxlab (in 2019) and HemaCare (in 2020) complement the company’s growth strategy, involving successful expansion of its portfolio and broadening of its geographic footprint. The acquisition of Cognate in March 2021 is also expected to be highly complementary to the company’s Biologics business.

Upbeat 2021 Guidance: During its first-quarter earnings call, the company has raised its 2021 revenue and adjusted earnings guidance. Revenues are now expected to grow in the band of 19-21% compared with the earlier guidance of 16-18%. This raised guidance is indicative of the ongoing growth momentum to continue through the rest of the year.

Downsides

Cell Supply Business Faces Challenge: Revenue growth for the company’s HemaCare and Cellero remained below the targeted level due to certain limitations related to donor access faced by the cell supply business in the first quarter.

Macroeconomic Condition: Charles River is susceptible to any trade policy-related conflict between the United States and China given the fact that a significant chunk of the company’s both RMS and DSA businesses is based in China.

Zacks Rank and Other Key Picks

Currently, Charles River carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks from the Medical-Services industry include Apollo Medical Holdings, Inc. AMEH, AMN Healthcare Services Inc AMN and ICON PLC ICLR.

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.

AMN Healthcare, which carries a Zacks Rank #1, has a long-term earnings growth rate of 6.5%.

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


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Charles River Laboratories International, Inc. (CRL) : Free Stock Analysis Report

AMN Healthcare Services Inc (AMN) : Free Stock Analysis Report

ICON PLC (ICLR) : Free Stock Analysis Report

Apollo Medical Holdings, Inc. (AMEH) : Free Stock Analysis Report

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