Unveiling Charles River Laboratories International (CRL)'s Value: Is It Really Priced Right? A ...
Charles River Laboratories International Inc (NYSE:CRL) recently experienced a daily loss of -5.21%, and a 3-month loss of -0.43%. Despite this, the company's Earnings Per Share (EPS) stand at 9.43. This raises the question: is the stock significantly undervalued? This article aims to answer that question through a detailed valuation analysis of Charles River Laboratories International (NYSE:CRL). We encourage you to read on for a comprehensive understanding of the company's value.
Company Overview
Established in 1947, Charles River Laboratories International Inc (NYSE:CRL) is a leading provider of drug discovery and development services. The company's research model & services segment is a top supplier of animal models for laboratory testing, which breeds and delivers animal research models with specific genetic characteristics for preclinical studies globally. The discovery & safety assessment segment includes services required to take a drug through the early development process, including discovery services. The manufacturing support segment includes microbial solutions, which provides in vitro (non-animal) testing products, biologics testing services, and avian vaccine services.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
The stock of Charles River Laboratories International appears to be significantly undervalued according to GuruFocus' valuation method. The GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. At its current price of $197.76 per share, Charles River Laboratories International has a market cap of $10.10 billion and the stock appears to be significantly undervalued.
Because Charles River Laboratories International is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company's financial strength before deciding whether to buy shares. A good initial perspective on the company's financial strength can be gained by looking at the cash-to-debt ratio and interest coverage. Charles River Laboratories International has a cash-to-debt ratio of 0.07, which ranks worse than 92.58% of 229 companies in the Medical Diagnostics & Research industry. Based on this, GuruFocus ranks Charles River Laboratories International's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Charles River Laboratories International has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $4.20 billion and Earnings Per Share (EPS) of $9.43. Its operating margin of 15.5% is better than 77.39% of 230 companies in the Medical Diagnostics & Research industry. Overall, GuruFocus ranks Charles River Laboratories International's profitability as strong.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Charles River Laboratories International is 13.7%, which ranks better than 59.02% of 205 companies in the Medical Diagnostics & Research industry. The 3-year average EBITDA growth is 19.3%, which ranks better than 62.11% of 190 companies in the Medical Diagnostics & Research industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Charles River Laboratories International's return on invested capital is 7.25, and its cost of capital is 9.59.
Conclusion
In conclusion, the stock of Charles River Laboratories International (NYSE:CRL) appears to be significantly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 62.11% of 190 companies in the Medical Diagnostics & Research industry. To learn more about Charles River Laboratories International stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
