Charles River Laboratories International, Inc.’s CRL RMS (Research Models and Services) segment is witnessing broad-based growth in all geographic regions for small research models. The company’s strategic partnerships are advancing its neuroscience capabilities. Sound financial stability also instills optimism. Meanwhile, a volatile macroeconomy and fierce competitive pressure may dent growth.
In the past year, this Zacks Rank #3 (Hold) stock has fallen 21.2% compared with the 13.8% drop of the industry and a 25.2% 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. CRL surpassed estimates in each of the trailing four quarters, delivering an average earnings surprise of 9.35%.
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Let’s delve deeper.
Upsides for CRL
RMS Prospects Appear Bright: Charles River’s RMS segment continues to benefit from higher NHP (nonhuman primate) revenues and broad-based growth in all geographic regions for small research models. 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. To support client demand, Charles River is consistently expanding CRADL’s footprint 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. The acquisition of Noveprim has also positively impacted the segment’s growth, contributing $9.1 million to third-quarter revenues.
Strategic Deals Drive Growth: In September 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. It also collaborated with the FOXG1 Research Foundation (FRF) to advance its gene therapy through clinical trials.
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.
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.
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Factors Affecting Charles River
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 and diverge from biotech clients. In the third quarter, the company’s organic revenues fell 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 competitive global market impacts the company’s market capitalization scenario.
CRL Stock Estimate Trend
The Zacks Consensus Estimate for CRL’s 2024 earnings has moved up 2 cents to $10.18 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 Haemonetics HAE, Boston Scientific BSX and Phibro Animal Health PAHC.
Haemonetics has an earnings yield of 5.88% compared with the industry’s 1.35%. 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 fallen 8.3% against the industry’s 9.7% 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 54.4% compared with the industry’s 9.7% growth. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.29%.
Phibro Animal Health, carrying a Zacks Rank #2 at present, has an estimated earnings growth rate of 35.3% for fiscal 2025 compared with the industry’s 11.1%. Shares of the company have risen 77.6% compared with the industry’s 9.8% growth over the past year. PAHC’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 25.47%.
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