Charles River Laboratories International, Inc. (CRL) is strengthening its market position through strategic partnerships and acquisitions, which are expected to drive growth in the coming quarters. The company’s Research Models and Services (RMS) segment is showing robust performance across different regions for small research models. Financially, CRL appears sound, though fluctuations in the biopharma industry pose a challenge, along with increasing competition from other players.
In the past year, this Zacks Rank #3 (Hold) stock has experienced a modest gain of 1.3%, contrasting with the stagnation of its industry while the S&P 500 composite surged 32.4%.
As a comprehensive, early-stage contract research organization, Charles River currently holds a market capitalization of $10.11 billion. The company boasts an earnings yield of 5.13%, significantly higher than the industry average of 3.21%. Notably, CRL has outperformed earnings estimates in all of the past four quarters, with an average earnings surprise of 9.35%.
Discover the latest EPS estimates and surprises on Zacks Earnings Calendar.
Let’s take a closer look.
Growth Drivers for CRL
Strategic Partnerships Enhance Offerings: Charles River is expanding its product and service range across the drug discovery and early-stage development landscapes through targeted partnerships and acquisitions. Just last month, in September 2024, the company improved its neuroscience research by integrating Insightec’s focused ultrasound technology into its preclinical services. Additionally, a partnership with CEBINA GmbH and the Central European Biotech Incubator and Accelerator supports its DanubeNeuro acceleration program.
The company has also joined forces with the FOXG1 Research Foundation to advance gene therapy clinical trials. Under a CDMO agreement, CRL will produce Good Manufacturing Practice (GMP) plasmid DNA for AAVantgarde.
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RMS Growth Prospects: CRL’s insourcing solutions (IS) segment, driven by the CRADL (Charles River Accelerator and Development Labs) initiative, has shown strong growth. The company has been expanding CRADL’s reach both organically and via the acquisition of Explora BioLabs, which specializes in contract vivarium research services. This year, revenue from small models has notably increased worldwide, with particularly strong performance in China and Europe. The acquisition of Noveprim has further bolstered this segment, adding $9.1 million to revenues in the third quarter of 2024.
Healthy Financial Structure: As of the end of the third quarter of 2024, Charles River reported cash and cash equivalents of $210 million, with no short-term debt. This solidifies the company’s solvency, particularly amid global economic fluctuations. Additionally, long-term debt dropped by 3.4% from the previous quarter, totaling $2.33 billion.
Challenges Facing CRL
Economic Climate: The current economic environment has forced Charles River’s global biopharmaceutical and biotechnology clients to adopt more cautious spending practices. Restructuring initiatives—likely prompted by influences such as the Inflation Reduction Act and impending patent expirations—have led to budget constraints and shifts in drug development priorities. Although revenue from biopharma clients grew in the second quarter, proposal activity and bookings have seen a notable decline, with organic revenues slipping 2.7% in the third quarter due to this challenging landscape.
Intensified Competition: Competing effectively in the market requires Charles River to leverage its therapeutic and scientific expertise in early-stage drug research, bolstered by quality, reputation, flexibility, responsiveness, pricing, and innovation. The company encounters competition from various players of different sizes across its business segments, creating pressure on its market capitalization.
Stock Estimates Update
The Zacks Consensus Estimate for CRL’s earnings has recently increased by 13 cents to $10.14 over the past month.
Meanwhile, the estimated revenue for 2024 stands at $4.02 billion, reflecting a 2.7% decrease from last year’s figures.
Other Noteworthy Stocks
In the broader medical sector, some stocks are currently outperforming. Haemonetics (HAE), Boston Scientific (BSX), and Penumbra (PEN) are among those with better rankings.
Haemonetics boasts an earnings yield of 5.41%, significantly higher than the industry average of 1.75%. The company’s performance has yielded three earnings surprises in the last four quarters, with an average surprise of 2.82%. Despite its shares’ rise of 8.9%, they fell short of the industry’s 21.2% growth over the past year.
Carrying a Zacks Rank #2 (Buy), Boston Scientific has a long-term estimated earnings growth rate of 13.8%. Its shares have skyrocketed 63.4%, compared to the industry’s 23.1% growth, with consistent earnings surprises across the last four quarters averaging 8.29%.
Penumbra, also with a Zacks Rank #2, has an estimated earnings growth rate of 35.3% for 2024. Its shares have risen 7.8%, lagging behind the industry growth of 15.1%, although its earnings have surpassed estimates in three of the last four quarters, displaying an average surprise of 10.54%.
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