Yahoo Finance 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 strategic acquisitions and the robust performance of the Discovery and Safety Assessment (“DSA”) segment. The company’s recently released 2023 first-quarter results instill investors’ optimism. However, the nonhuman primate (NHP) supply situation and foreign exchange headwinds do not bode well for the Charles River.
In the past year, this Zacks Rank #3 (Hold) stock has declined 16.4% compared with the 19.1% fall of the industry and a 5.6% rise of the S&P 500 composite.
Operating as a full-service, early-stage contract research organization, Charles River has a market capitalization of $9.84 billion. The company has an earnings yield of 5.33% compared with the industry’s 1.99%. CRL surpassed estimates in all the trailing four quarters, delivering an average earnings surprise of 5.39%.
Let’s delve deeper.
Image Source: Zacks Investment Research
Upsides
Impressive Q1 Performance: Charles River exited the first quarter of 2023 with better-than-expected earnings and revenues. Revenues improved 12.6% year over year, while organic revenues grew 15.4%. This was driven by the robust DSA performance and solid RMS growth.
Based on the strong first-quarter performance, Charles River narrowed its 2023 guidance for organic revenue growth and adjusted earnings per share.
Strategic Acquisitions Drive Growth: Charles River broadens the scope of products and services across the drug discovery and early-stage development continuum through focused acquisitions.
The acquisition of Cognate in March 2021 is highly complementary to the company’s Biologics business. The buyout established Charles River as a premier scientific partner in cell and gene therapy development, testing and manufacturing.
Within RMS, the company acquired Explora Biolabs in April 2022. San Diego-based Explora has a similar focus like Charles River Accelerator and Development Lab. It is currently operating more than 15 preclinical vivarium facilities with a greater presence on the West Coast.
DSA Arm Continues to Thrive: The segment reported a 23.6% organic revenue rise in the first quarter of 2023. The increase was driven by broad-based growth in the Safety Assessment business on favorable base pricing, with NHP pass-throughs and higher study volumes.
Downsides
NHP Supply Issue: On Feb 17, Charles River received a subpoena from the U.S. Department of Justice over an investigation into the supply of NHPs from Cambodia, which are part of the animal research services the company offers to drug developers.
Compelled by the heightened focus and ongoing investigations, the company decided to voluntarily suspend its planned future shipments of Cambodian NHPs. This will continue until the U.S. Fish and Wildlife Service can develop and implement new procedures to reinforce confidence that NHPs it imports from Cambodia are purpose-bred. This will take time to implement, and the duration of which is unknown.
Foreign Exchange Translation Affects Sales: Foreign exchange is a major headwind for CRL 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 international markets. The impact of foreign currency translation reduced reported revenue growth by 2.1% in the first quarter.
Estimate Trend
Charles River has been witnessing a positive estimate revision trend for 2023. The Zacks Consensus Estimate for its earnings has moved 9.9% up to $10.25 in the past seven days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $4.10 billion, suggesting a 3.1% decline from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Zimmer Biomet ZBH, Penumbra PEN and Hologic, Inc. HOLX.
Zimmer Biomet, sporting a Zacks Rank #1 (Strong Buy) at present, has an earnings yield of 5.42% compared to the industry’s -1.86%. Zimmer Biomet’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Zimmer Biomet shares have increased 14.6% compared to the industry’s 29.6% decline in the past year.
Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have risen 60.4% against the industry’s 29.6% fall over the past year.
PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.
Hologic, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 4.68% compared to the industry’s -7.62%. Shares of HOLX have risen 4.2% compared with the industry’s 2.1% growth over the past year.
Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Charles River Laboratories International, Inc. (CRL) : Free Stock Analysis Report
Hologic, Inc. (HOLX) : Free Stock Analysis Report
Zimmer Biomet Holdings, Inc. (ZBH) : Free Stock Analysis Report
Penumbra, Inc. (PEN) : Free Stock Analysis Report
