Charles River (CRL) Gains From CRADL Amid Soft Market Scenario
Charles River Laboratories CRL continues to gain from the CRADL initiative. However, the competitive landscape is a concern. The stock carries a Zacks Rank #3 (Hold) currently.
Research Models and Services (RMS) business services are in high demand among Charles River’s clients in the field of basic research and screening of non-clinical drug candidates. The RMS segment continues to benefit from broad-based growth in all geographic regions for small research models. Through most of 2023, the company witnessed strong growth within the insourcing solutions business led by the Charles River Accelerator and Development Labs (CRADL) initiative.
These days, clients are increasingly adopting CRADL’s flexible model to access laboratory space without having to invest in internal infrastructure. To support client demand, Charles River is consistently expanding CRADL’s footprint both organically and through the acquisition of Explora BioLabs (done in 2022), a provider of contract vivarium research services.
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 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.
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, since the beginning of 2023, although Discovery Services’ revenues demonstrated steady growth, the rate of growth remained at a moderate level, reflecting the current market environment, coupled with the shorter-term nature of both discovery projects and the business backlog. Impacted by a more cautious spending environment from biopharmaceutical clients, the DSA backlog consistently declined on a sequential basis through 2023.
In the fourth quarter of 2023, the DSA backlog declined to $2.45 billion from $2.6 billion at the end of the third quarter. This trend reflected the normalization of booking and proposal activity compared to 2022 (at the end of 2022, the DSA backlog was $3.15 billion). Clients are not booking work as far out as they did over the past few years, and this is the result of their evaluation of pipeline priorities and scheduling with a near-term focus.
Meanwhile, 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 business segments.
Key Picks
Some better-ranked stocks in the broader medical space are DaVita DVA, Cardinal Health CAH and Stryker SYK. While DaVita presently sports a Zacks Rank #1 (Strong Buy), Cardinal Health and Stryker carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
Estimates for DaVita’s 2024 earnings per share have moved up from $8.46 to $8.86 in the past 30 days. Shares of the company have increased 45.6% in the past year compared with the industry’s 7.9% rise.
DVA’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 35.6%. In the last reported quarter, it delivered an earnings surprise of 22.2%.
Cardinal Health’s stock has increased 32.6% in the past year. Earnings estimates for Cardinal Health have risen from $6.90 to $7.17 for fiscal 2024 and from $7.73 to $7.94 for fiscal 2025 in the past 30 days.
CAH’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 15.6%. In the last reported quarter, it posted an earnings surprise of 16.7%.
Estimates for Stryker’s 2024 earnings per share have increased from $11.54 to $11.84 in the past 30 days. Shares of the company have moved 32.8% upward in the past year compared with the industry’s rise of 4.9%.
SYK’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 5.1%. In the last reported quarter, it delivered an earnings surprise of 5.8%.
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