Here's Why You Should Invest in Charles River (CRL) Now
Investors are optimistic about Charles River (CRL) on solid second-quarter performance and bullish 2021 guidance.
Charles River Laboratories International, Inc. CRL has been gaining on robust demand in Biologics Testing Solutions and Microbial Solutions businesses in the second quarter of 2021. Further, the bullish 2021 guidance buoys optimism. However, foreign exchange fluctuations and stiff competition are major downsides.
Over the past year, shares of this Zacks Rank #2 (Buy) company have outperformed the industry. The company has gained 91.4% against the 36.3% decline of the industry and 32.6% rise of the S&P 500.
The full service, early-stage contract research organization (CRO) has a market capitalization of $21.73 billion. The company projects 14% growth for the next five years. The company surpassed estimates in the trailing four quarters, the average surprise being 16.73%.
Let’s delve deeper.
Impressive Q2 Results: The company exited the second quarter of 2021 on a strong note, with better-than-expected revenues and earnings. The second quarter was highlighted by 24.1% organic revenue growth, driven by double-digit growth across all three segments. Robust demand in the Biologics Testing Solutions and Microbial Solutions businesses drove Manufacturing Solutions revenues in the reported quarter. Meanwhile, the company expects strong synergies from the acquisition of Cognate, which will help it to offer CDMO services in the high-growth, high-science cell and gene therapy sector. Expansion of both margins is encouraging as well.
DSA Arm Continues to Thrive: This segment reported 18.1% organic revenue growth in the second quarter of 2021 driven by broad-based demand for both Discovery and Safety Assessment businesses. The Safety Assessment business continued to perform exceptionally well, reflecting robust demand from biotech and global biopharma clients. Bookings and proposal volume reached record highs in the second quarter, with strength across all regions and major service areas. Bookings increased substantially more than the company’s target.
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Charles River projects the DSA segment to deliver low double-digit revenue growth for the full year, reflecting continued strength in early stage research activity.
Raised Guidance: For 2021, Charles River raised its revenue and adjusted earnings guidance. Revenues are now expected to grow in the band of 20.5-22.5% compared with the earlier guidance of 19-21% Organic revenue growth is now expected in the range of 13-15% versus 12-14% earlier. Adjusted earnings per share for 2021 are expected in the range of $10.10-10.35, suggesting a rise from the earlier range of $9.75-$10.00.
However, foreign exchange is a major headwind for Charles River as a considerable percentage of its revenues comes from outside the United States. The strengthening of euro and some other developed market currencies has been constantly hampering the company’s performance in international markets.
Moreover, Charles River competes in the marketplace on the basis of its therapeutic and scientific expertise in early-stage drug research, quality, reputation, flexibility, responsiveness, pricing, innovation and global capabilities. This fiercely competitive global market impacts the company’s market capitalization scenario.
Charles River has been witnessing a positive estimate revision trend for the current year. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 3.5% north to $10.25.
The Zacks Consensus Estimate for its third-quarter 2021 revenues is pegged at $898.9 million, suggesting 20.9% growth from the year-ago reported number.
Other Key Picks
A few other similar-ranked stocks from the broader medical space are Envista Holdings Corporation NVST, BellRing Brands, Inc. BRBR and ModivCare Inc. MODV, each carrying a Zacks Rank #2. You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.
Envista Holdings has an estimated long-term earnings growth rate of 27%.
BellRing Brands has an estimated long-term earnings growth rate of 29%.
ModivCare has a projected long-term earnings growth rate of 10%.
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