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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 has been gaining from the impressive first-quarter 2022 performance. The company’s noteworthy collaborations to accelerate the discovery process buoy optimism. A strong solvency position is an upside. However, foreign-exchange fluctuations and stiff competition raise apprehension.

Over the past year, the Zacks Rank #3 (Hold) stock has declined 26.9% compared with a 62.4% fall of the industry and a 3.6% fall of the S&P 500.

The full-service, early-stage contract research organization has a market capitalization of $11.98 billion. The company projects 14% growth for the next five years compared with the industry’s projected growth rate of 19%.

Let’s delve deeper.

Factors at Play

Impressive Q1 Results: Charles River exited the first quarter of 2022 with better-than-expected earnings and revenues. Results highlight 9.4% organic revenue growth, driven by strength across all three segments. The performance was in line with the company’s February-announced outlook. Biotech clients continued to be the primary driver of revenue growth in the first quarter.

Within the DSA, the organic growth rate improved nearly 300 basis points from the fourth quarter, driven by the Safety Assessment business. RMS organic revenue growth was driven by broad-based demand and meaningful price increases in the Research Model business, particularly in North America.

Strategic Acquisitions Drive Growth: Charles River broadens the scope of the products and services across the drug discovery and early-stage development continuum through focused acquisitions.

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Zacks Investment Research

Image Source: Zacks Investment Research

Within DSA, the acquisition of Retrogenix — an early-stage contract research organization — in 2021, with its proprietary cell microarray technology and off-target screening services, is currently contributing strongly to the company’s top line. In June 2021, Charles River acquired Vigene Biosciences — a premier, gene therapy contract development and manufacturing organization providing viral vector-based gene delivery solutions.

Stable Solvency Structure: Charles River exited the first quarter of 2022 with cash and cash equivalents of $242 million compared with $241 million at the end of fourth-quarter 2021. Meanwhile, total debt was $2.67 billion, marginally higher than the year-ago period’s $2.66 billion. Although the first quarter’s total debt was much higher than the corresponding cash and cash equivalent level, the company has a short-term payable debt of $3 million on its balance sheet, much lower than the present level of cash in hand. This is good news, in terms of the company’s solvency position, particularly during the pandemic when it is majorly facing a manufacturing and supply halt globally.

Downsides

Foreign Exchange Translation Impacts Sales: Foreign exchange is a major headwind for Charles River as a considerable percentage of its revenues come 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 the international markets.

Competitive Landscape: 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. The company primarily faces a broad range of competitors of different sizes and capabilities in its three business segments.

Estimate Trends

Charles River is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 0.8% north to $11.63.

The Zacks Consensus Estimate for 2022 revenues is pegged at $4.05 billion, suggesting a 14.4% rise from the year-ago reported number.

Key Picks

A few better-ranked stocks in the broader medical space are UnitedHealth Group Incorporated UNH, Medpace Holdings, Inc. MEDP and Alkermes plc ALKS.

UnitedHealth, having a Zacks Rank #2 (Buy), reported first-quarter 2022 earnings per share (EPS) of $5.49, which beat the Zacks Consensus Estimate by 1.7%. Revenues of $80.1 billion outpaced the consensus mark by 14.2%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

UnitedHealth has an estimated long-term growth rate of 14.8%. UNH’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%.

Medpace reported first-quarter 2022 adjusted EPS of $1.69, which surpassed the Zacks Consensus Estimate by 34.1%. Revenues of $330.9 million outpaced the Zacks Consensus Estimate by 1.1%. MEDP currently has a Zacks Rank #2.

Medpace has a historical growth rate of 27.3%. MEDP’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%.

Alkermes reported first-quarter 2022 adjusted EPS of 12 cents, which surpassed the Zacks Consensus Estimate of a penny. Revenues of $278.6 million outpaced the Zacks Consensus Estimate by 6.2%. ALKS currently sports a Zacks Rank #1.

Alkermes has an estimated long-term growth rate of 25.1%. ALKS’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%.


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UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report

Alkermes plc (ALKS) : 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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