Charles River Laboratories International, Inc.’s CRL leadership in outsourced drug discovery and safety testing services supports the growth in its DSA (Discovery and Safety Assessment) segment. Through targeted acquisitions and collaborations, the company enhances its offerings across the drug discovery and early-development continuum. Additionally, the RMS (Research Models and Services) segment sees broad-based growth in all geographic regions for small research models. Yet, the adverse macroeconomic impacts and intense competitive pressure pose risks for the company’s operations.
In the past year, this Zacks Rank #3 (Hold) stock has fallen 37.5% compared with the industry’s 18% drop and the S&P 500 composite’s 21.9% rise.
Operating as a full-service, early-stage contract research organization, Charles River has a market capitalization of $7.87 billion. CRL surpassed estimates in each of the trailing four quarters, delivering an average earnings surprise of 9.35%.
Let’s delve deeper.
Upsides for CRL
DSA – A Potential Growth Driver: 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 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.
Strategic Deals Drive Growth: In 2024, Charles River advanced its neuroscience research by integrating Insightec’s focused ultrasound technology into its preclinical services. The company has also partnered with CEBINA GmbH, Central European Biotech Incubator and Accelerator, to support its DanubeNeuro acceleration program, which identifies cutting-edge academic projects with the potential to diagnose, prevent or treat neurodegenerative diseases. In addition, it collaborated with the FOXG1 Research Foundation (FRF) to advance its gene therapy through clinical trials.
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Charles River has become the preferred research partner for Autobahn Labs, offering its drug discovery and development capabilities to accelerate the translation of academic discoveries into novel therapeutics. Under a contract development and manufacturing organization (CDMO) agreement, the company will manufacture Good Manufacturing Practice (GMP) plasmid DNA for AAVantgarde. Charles River announced a plasmid DNA and retrovirus vector production program agreement with Captain T Cell, a spinoff from Max Delbrück Center Berlin, Germany.
RMS Prospects Bright: Over the past several quarters, Charles River has witnessed strong growth within the insourcing solutions (IS) business, led by the CRADL (Charles River Accelerator and Development Labs) initiative. To support client demand, Charles River is consistently expanding CRADL’s footprint both organically and through the acquisition of Explora BioLabs, a provider of contract vivarium research services.
Throughout 2024, revenues for small models continued to increase in all geographies, particularly in China and Europe. The China business has been resilient despite the macroeconomic pressures in the country as the growth rate for small research models has strengthened due to share gains associated with geographic expansions within the country. Additionally, the acquisition of Noveprim has positively impacted the segment’s growth, contributing $9.1 million to the third-quarter revenues. Charles River has also signed new contracts for its legacy IS Vivarium management solutions and noted that the CRADL growth rate is expected to accelerate going forward.
Factors Affecting Charles River
Margin Pressure: The industry-wide trend of difficult macroeconomic conditions in the form of geopolitical pressure leading to disruptions in economic activity, global supply chains and labor markets is creating a challenging business environment for Charles River. Further, volatile financial market dynamics and significant volatility in price and availability of goods and services are putting pressure on the company’s profitability. With sustained macroeconomic pressures, the company may struggle to keep in check its costs and expenses. In the third quarter of 2024, the gross profit decreased 3.5% year over year, leading to a 68-basis point (bps) contraction in the gross margin.
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. With competitors of all sizes in each business segment, the company navigates a highly competitiveglobal marketthat impacts its market capitalization scenario.
CRL Stock Estimate Trend
The Zacks Consensus Estimate for CRL’s 2024 earnings has moved down 2 cents to $10.16 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $4.02 billion, suggesting a 2.5% decrease from the year-ago reported number.
Top MedTech Stocks
Some better-ranked stocks in the broader medical space are Boston Scientific BSX, Veracyte VCYT and Phibro Animal Health PAHC.
Boston Scientific has an earnings yield of 2.69% compared with the industry’s 1.33%. Shares of the company have rallied 60.7% compared with the industry’s 15.2% growth. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 8.2%.
BSX sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Veracyte, also sporting a Zacks Rank #1, has an estimated 2024 earnings growth rate of 209.8% compared with the industry’s 15.5%. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 520.5%. Its shares have surged 55.4% compared with the industry’s 5.1% growth in the past year.
Phibro Animal Health, carrying a Zacks Rank #2 (Buy) at present, has an estimated fiscal 2025 earnings growth rate of 43.7% compared with the industry’s 15.8%. Shares of the company have surged 110.9% compared with the industry’s 15.2% growth over the past year. PAHC’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 27%.
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