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Here's Why You Should Retain Charles River (CRL) Stock for Now

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Charles River Laboratories International, Inc. CRL is well poised for growth backed by robust demand in Biologics Testing Solutions and Microbial Solutions businesses. Further, the acquisitions of Cognate BioServices and Vigene Biosciences buoy optimism. However, foreign exchange fluctuations and stiff competition are major downsides.

Over the past year, shares of this Zacks Rank #3 (Hold) company have gained 47.2% against the 58% decline of the industry and 26.9% rise of the S&P 500.

The full-service, early-stage contract research organization (CRO) has a market capitalization of $17.84 billion. The company projects 14% growth for the next five years compared with the industry’s growth of 19.8%.

Let’s delve deeper.

Factors at Play

DSA Arm Continues to Thrive: This segment reported 13% organic revenue growth in the third quarter of 2021, driven by robust demand from global biopharmaceutical and biotechnology clients in both Discovery Services and Safety Assessment businesses (DSA). The DSA segment has witnessed double-digit organic growth in the reported quarter on the growing demand for its services and price increases, which the company expects will continue next year. Charles River projects the DSA segment to deliver low double-digit revenue growth for the full year, reflecting continued early-stage research activity strength.

Strategic Acquisitions Drive Growth: In June 2021, Charles River acquired Vigene Biosciences -- a premier gene therapy contract development and manufacturing organization (CDMO) providing viral vector-based gene delivery solutions. The acquisition complements Charles River’s existing cell and gene therapy contract manufacturing capabilities and establishes an end-to-end, gene-modified cell therapy solution in the United States. The acquisition of Cognate in March 2021 is also expected to be highly complementary to the company’s Biologics business. The acquisition establishes Charles River as a premier scientific partner to cell and gene therapy development, testing and manufacturing.

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RMS Business Rebounds: Last year, the Research Models and Services (RMS) segment was hugely impacted by COVID-related business disruption. However, in the third quarter, RMS revenues increased 10.7% organically year over year. Organic revenue growth was driven by robust demand for research models, particularly in China, as well as higher revenues from research model services, mainly the Genetically Engineered Models and Services (GEMS) business.

Downsides

Foreign Exchange Translation Impacts Sales: Foreign exchange is a major headwind for Charles River 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 constantly been hampering the company’s performance in international markets.

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 business segment.

Estimate Trends

Charles River has been witnessing a positive earnings estimate revision trend for the current year. Over the past 30 days, the Zacks Consensus Estimate for its earnings has moved 0.5% north to $10.25.

The Zacks Consensus Estimate for its fourth-quarter 2021 revenues is pegged at $891.5 million, suggesting 12.7% growth from the year-ago reported number.

Key Picks

A couple of better-ranked stocks from the broader medical space are Thermo Fisher Scientific Inc. TMO, Laboratory Corporation of America Holdings LH, or LabCorp and Medpace Holdings, Inc. MEDP.

Thermo Fisher, currently carrying a Zacks Rank #2 (Buy), reported third-quarter 2021 adjusted earnings per share (EPS) of $5.76, which surpassed the Zacks Consensus Estimate by 23.3%. Revenues of $9.33 billion outpaced the Zacks Consensus Estimate by 12%. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher has an estimated long-term growth rate of 14%. TMO surpassed estimates in the trailing four quarters, the average surprise being 9.02%.

LabCorp, carrying a Zacks Rank #1, reported third-quarter 2021 adjusted EPS of $6.82, which surpassed the Zacks Consensus Estimate by 42.9%. Revenues of $4.06 billion outpaced the Zacks Consensus Estimate by 13.4%.

LabCorp has an estimated long-term growth rate of 10.6%. LH surpassed estimates in the trailing four quarters, the average surprise being 25.7%.

Medpace reported third-quarter 2021 adjusted EPS of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%.

Medpace has an estimated long-term growth rate of 16.4%. MEDP surpassed estimates in the trailing four quarters, the average surprise being 11.9%. It currently sports a Zacks Rank #1.


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Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report

Thermo Fisher Scientific Inc. (TMO) : Free Stock Analysis Report

Charles River Laboratories International, Inc. (CRL) : Free Stock Analysis Report

Medpace Holdings, Inc. (MEDP) : Free Stock Analysis Report

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