Market Overview

Positives In Charles River Labs 'Largely Reflected In Industry-High Valuation'

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Shares of Charles River Laboratories Intl. Inc (NYSE: CRL) have gained 12 percent since March 21. Credit Suisse’s Erin Wilson initiated coverage of the company with a Neutral rating and a price target of $84. While Charles River Labs has exhibited solid execution against a strong fundamental backdrop, its industry-high valuation calls for the Neutral rating.

Charles River Labs is a leading contract research organization that is “uniquely focused” on drug discovery and early-stage development services. Analyst Erin Wilson believes the company is poised to benefit from “increased R&D spending and rising outsourcing demand, particularly in a relatively healthy biotech funding environment, where its customer exposure is increasing.”

Incremental Growth Avenues

Charles River Labs has added significantly to its suite of services via several acquisitions over the last four years, and has diversified into faster growing businesses, which are likely to continue supporting “healthy high single-digit organic growth,” Wilson noted.

With the WIL acquisition of April, Charles River Labs eliminated a primary competitor in safety assessment and added about $220 million in annual revenues, “growing at a healthy clip (+9%), albeit at a lower margin (mid-teens),” the analyst said. He expects the deal to add $0.23 per share to 2016 adj. EPS and $0.47 in 2017, as well as $20 million in synergies by 2018.

“While cost structure initiatives should continue to support profit margin leverage ($35 million savings in 2016), WIL dilution will partially offset near term. Capital deployment will likely focus on deleveraging but smaller tuck-in deals could offer upside longer term,” Wilson wrote.

Valuation

Charles River Labs’ shares have gained 22 percent from their February-lows, versus a 12 percent gain in the S&P 500, and are now trading above their historical average and “the highest in our CRO universe,” the analyst commented.

Latest Ratings for CRL

DateFirmActionFromTo
Nov 2019MaintainsNeutral
Oct 2019DowngradesBuyNeutral
Sep 2019MaintainsBuy

View More Analyst Ratings for CRL
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Posted-In: Credit Suisse Erin WilsonAnalyst Color Initiation Analyst Ratings

 

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