Here's Why You Should Retain Charles River (CRL) Stock Now
Charles River Laboratories International, Inc. CRL is well-poised for growth in the coming quarters, backed by RMS segment continued growth benefitted from broad-based growth in all geographic regions for small research models. Strategic buyouts, the recent one being Explora Biolabs, are helping the company broaden its offerings. 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% compared with an 8.3% decline of the industry. However, the S&P 500 composite registered a 20.5% rise in the same time frame.
Operating as a full-service, early-stage contract research organization, Charles River has a market capitalization of $9.89 billion. The company has a long-term growth rate of 9.4% compared with the industry’s 13.4%.
Let’s delve deeper.
Tailwinds
RMS Business Rebounds: The RMS segment continues to benefit from broad-based growth in all geographic regions for small research models. Further, the company is showing strong growth within the end sourcing solutions business led by the CRADL operations or Charles River Accelerator and Development Labs initiative. Global biopharmaceutical companies, small and midsized biotechs and academic and government accounts significantly contributed to the growth rate. At the beginning of 2023, the company faced a dull performance in China.
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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Within RMS, the company acquired Explora Biolabs in April 2022. San Diego-based Explora has a similar focus to Charles River as CRADL, currently operating more than 15 preclinical vivarium facilities with a greater presence on the West Coast.
Upbeat Guidance: For 2023, CRL’s revenue growth is now expected in the band of 2.5-4.5% (from the earlier band of 2-4.5%) on a reported basis. Organic revenue growth is expected to be 5.5-7.5% (5-7.5%). The Zacks Consensus Estimate for total revenues is pegged at $4.11 billion, indicating a 3.4% rise from 2022.
Downsides
Foreign Exchange Translation Impacts Sales: Foreign exchange is a major headwind for Charles River due to a considerable percentage of its revenues coming 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 reduce reported revenue growth by 0.4% in 2023.
Competitive Landscape: Charles River competes in the marketplace based on 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 its three business segments. For RMS, it 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. For DSA, Discovery Services has three main competitors, two are public companies in China and one is a public company in Europe.
Estimate Trends
Charles River has been witnessing a positive estimate revision trend for 2023. The Zacks Consensus Estimate for its earnings has moved 1.6% north to $10.49 per share in the past 90 days.
The Zacks Consensus Estimate for CRL’s 2023 revenues is pegged at $4.12 billion, suggesting a 3.5% rise from the year-ago reported number.
Key Picks
Some other top-ranked stocks in the broader medical space are DaVita Inc. DVA, Quanterix QTRX and Align Technology ALGN, each carrying a Zacks Rank #2 (Buy).
DaVita has an estimated long-term growth rate of 12.7%. DVA’s earnings surpassed estimates in three of the trailing four quarters and missed once, with an average surprise of 21.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DaVita has gained 25.5% against the industry’s 8.9% decline over the past year.
Estimates for Quanterix’s 2023 loss per share have remained constant at 97 cents in the past 30 days. Shares of the company have surged 141.5% in the past year compared with the industry’s fall of 5.6%.
QTRX’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 30.39%. In the last reported quarter, it posted an earnings surprise of 55.56%.
Estimates for Align Technology’s 2023 earnings have moved up from $8.77 to $8.78 per share in the past 30 days. Shares of the company have increased 27% in the past year compared with the industry’s rise of 14.3%.
ALGN’s earnings beat estimates in three of the trailing four quarters and missed in one. In the last reported quarter, it posted an earnings surprise of 9.90%.
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