Charles River Laboratories International, Inc. CRL continues to enhance its portfolio through targeted partnerships and acquisitions, poised to drive growth in the upcoming quarters. The company’s RMS (Research Models and Services) is witnessing broad-based growth in all geographic regions for small research models. Sound financial health also bodes well for the stock. Meanwhile, volatilities in the biopharma industry remain a challenge for Charles River. Intense rivalry from other industry players adds to the concern.
In the past year, this Zacks Rank #3 (Hold) stock has risen 1.3% compared with the flat growth of the industry and a 32.4% rise of the S&P 500 composite.
Operating as a full-service, early-stage contract research organization, Charles River has a market capitalization of $10.11 billion. The company has an earnings yield of 5.13% compared to the industry’s 3.21% yield. CRL surpassed estimates in each of the trailing four quarters, delivering an average earnings surprise of 9.35%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Let’s delve deeper.
Upsides for CRL
Strategic Deals Drive Growth: Charles River broadens the scope of its products and services across the drug discovery and early-stage development continuum through focused partnerships and acquisitions. In September 2024, the company advanced its neuroscience research by integrating Insightec’s focused ultrasound technology into its preclinical services. Charles River also partnered with CEBINA GmbH, Central European Biotech Incubator and Accelerator, to support its DanubeNeuro acceleration program.
It also collaborated with the FOXG1 Research Foundation to advance its gene therapy through clinical trials. Under a contract development and manufacturing organization (CDMO) agreement, the company will manufacture Good Manufacturing Practice- (GMP) plasmid DNA for AAVantgarde.
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RMS Prospects Bright: Over the past several quarters, the company has witnessed strong growth within the insourcing solutions (IS) business led by the CRADL (Charles River Accelerator and Development Labs) initiative. Charles River is consistently expanding CRADL’s footprint organically and through the acquisition of Explora BioLabs, a provider of contract vivarium research services. Throughout this year, revenues for small models continued to increase in all geographies, particularly in China and Europe. The acquisition of Noveprim has positively impacted the segment’s growth, contributing $9.1 million to 2024 third-quarter revenues.
Stable Solvency Structure: Charles River exited the third quarter of 2024 with cash and cash equivalents of $210 million, while short-term debt payable was nil. This is good news for the company’s solvency position, particularly during the time of worldwide macroeconomic complications. Meanwhile, long-term debt decreased 3.4% from the second quarter to $2.33 billion.
Factors Weighing on CRL
Macroeconomic Condition: Charles River is experiencing a cautious spending environment, particularly among its global biopharmaceutical and biotechnology clients within the DSA segment. Industry-wide restructuring programs likely precipitated by the IRA or pending patent expirations have led to tighter budgets and reprioritizing their drug pipeline activities this year. Although revenues for biopharma clients increased in the second quarter, proposal activity and bookings began to decline notably and diverge from biotech clients. In the third quarter, the company’s organic revenues declined 2.7% from the challenging biopharmaceutical demand landscape.
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 each of its three business segments. This fiercely competitiveglobal marketimpacts the company’s market capitalization scenario.
CRL Stock Estimate Trend
The Zacks Consensus Estimate for CRL’s earnings has moved up 13 cents to $10.14 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $4.02 billion, suggesting a 2.7% decrease from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics HAE, Boston Scientific BSX and Penumbra PEN.
Haemonetics has an earnings yield of 5.41% compared with the industry’s 1.75%. Haemonetics’ earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed on one occasion, the average surprise being 2.82%. Its shares have risen 8.9% compared with the industry’s 21.2% growth in the past year.
HAE carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Boston Scientific, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 13.8%. Shares of the company have surged 63.4% compared with the industry’s 23.1% growth. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.29%.
Penumbra, carrying a Zacks Rank #2 at present, has an estimated earnings growth rate of 35.3% for 2024 compared with the industry’s 12.8%. Shares of Penumbra have risen 7.8% compared with the industry’s 15.1% growth over the past year. PEN’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 10.54%.
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