For researcher, crisis breeds opportunity

Recent Price $234
Dividend $0.00
Yield 0%
P/E Ratio 33%
Shares (millions) 50.0
Long-Term Debt as % of Capital 51.8%
52-Week Price Range $250.29 - $95.58

 

Charles River Laboratories ($234; CRL) may not be a household name, but it flows through all facets of the pharmaceutical industry. The company was involved in the development of about 85% of all drugs approved by the U.S. Food and Drug Administration last year. So it comes as no surprise that Charles River, a provider of contract research, plays a major role in the efforts of dozens of drug makers to develop vaccines and treatments for the coronavirus.

The pandemic has had a mixed effect on Charles River, driving many clients to shut down laboratories and idle clinical trials. However, the near-term outlook is brightening, as customers reopen their research facilities faster than expected. Charles River said demand picked up substantially in June, as research activity in general and drug development in particular gained momentum.

The stock, which scores an 78 Overall in Quadrix® and tops 85 in three category scores, is rated a Focus List Buy and a Long-Term Buy.

New opportunities

The crisis has opened some encouraging doors.

➤ Charles River managed to keep all of its labs open, grabbing share from out-of-action competitors.

➤ Clients have been outsourcing to Charles River work they previously performed in-house.

➤ The company expects to retain a “meaningful amount” of the recently gained business, in part because some firms that used to do their own research will keep outsourcing, and in part because some firms that used multiple providers will opt to stick with a larger partner who can satisfy more of their research needs in one place.

Recent acquisitions have broadened Charles River’s portfolio of services, including cell therapy and manufacturing. While the company entered a number of new markets in recent years, mostly via acquisitions, it still specializes in preclinical research. Most of the largest competitors focus on human clinical trials, leaving Charles River as the strongest player in many of its markets.

In August, Charles River purchased Cellero for $38 million. This business will combine with HemaCare, acquired for $380 million in January, to provide biomaterials for cell therapy research. Charles River says acquisitions remain its preferred use for capital, and that many candidates are available. Expect more deals in the future, likely niche purchases that round out product lines or provide footholds in new markets.

June-quarter earnings per share topped the consensus by 24%, as Charles River’s earnings fell 3%, much better than its earlier projection of a 20% to 30% decline. In response, the company raised its full-year sales and profit targets, and analysts followed their lead. The consensus now calls for growth of 9% in sales and 8% in per-share profits this year despite an estimated loss of $100 million in revenue from the coronavirus.

Charles River trades at 30 times trailing earnings, pricey relative to the broad market but 13% below the median for life-sciences stocks and 16% below its own three-year average.

Charles River Laboratories Int’l Inc., 251 Ballardvale St., Wilmington, MA 01887, (781) 222-6000, www.criver.com.

 

Quarter Per-Share Earnings* Sales Change Quarterly Price Range P/E Ratio
Range
Jun '20 $1.58 vs. 1.63 4% $189.85 - $116.42 26 - 16
Mar '20 1.84 vs. 1.40 17% 179.38 - 95.58 27 - 14
Dec '19 2.01 vs. 1.49 15% 152.91 - 123.61 25 - 20
Sep '19 1.69 vs. 1.53 14% 144.39 - 124.62 24 - 21

 

Year
(Dec.)
Sales
(Bil.)
Per-Share Earnings* Per-Share
Dividend
52-Week Price Range P/E Ratio
Range
2019 $2.6 $6.73 $0.00 $152.91 - $103.00 23 - 15
2018 2.3 6.03 0.00 139.72 - 96.70 23 - 16
2017 1.9 5.27 0.00 119.05 - 75.25 23 - 14
2016 1.7 4.56 0.00 89.18 - 65.70 20 - 14

 

Quadrix Scores
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Perform-
ance
Reversion
78 77 24 91 67 87 91 7

 

* Earnings exclude special items.
NA Not Available.
Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.