Charles River Laboratories: new drug research and testing
After a rapid rise in share price in 2021 and 2022, the company is now trading 56% below its absolute peak. What's behind the company's fall of more than half in a single year, and how is its pharma business faring?
Charles River Laboratories was founded in 1947. It specializes in providing contract research and development services for new drugs. The company is headquartered in the state of Massachusetts, USA. The company focuses on supporting the pharmaceutical, biotechnology and government sectors in their efforts to develop new drugs and treatments.
The company provides a wide range of services, including preclinical research, where it conducts toxicological, pharmacological and pharmacokinetic tests necessary for the development of new drugs. In addition, it is one of the world's largest suppliers of laboratory animals, primarily rodents, used in research. It also offers biological testing, including safety and efficacy testing of biological products such as vaccines and monoclonal antibodies, and provides genetic and molecular diagnostic services.
Interesting factA: An interesting fact about Charles River Laboratories is that the company takes its name from the actual Charles River that flows through Boston, Massachusetts. In fact, it was in this area that the company began its operations in 1947 as a small supplier of purebred laboratory animals, primarily rats and mice, for scientific purposes.
Management
James C. Foster - CEO
James is Chairman of the Board, President and Chief Executive Officer of Charles River Laboratories. Since beginning his career at Charles River in 1976, he has held various positions including Vice President of Administration and General Counsel, President of Charles River Biotechnical Services and Executive Vice President.
He was named President in 1991, Chief Executive Officer (CEO) in 1992 and Chairman in 2000. As CEO, he redirected Charles River from a specialized research models and services business to a full-service early-stage drug discovery partner to more than 100 of the world's largest biopharmaceutical companies and academic institutions.
James Foster is a principal advisor to Cell Signaling Technology. He is Chairman of the Board of Trustees of the Institute of Contemporary Art in Boston and a member of the Presidential Advisory Board of Berklee College of Music. He is also a visiting lecturer at the Massachusetts Institute of Technology (MIT).
Mr. Foster holds a B.A. degree from Lake Forest College, an M.S. degree from MIT, and a J.D. degree from Boston University School of Law.
If you would like more information about the CEO himself, you can check out his personal Linkedin profile, where he has listed his entire professional career.
Industry/Specialty of the Company
Preclinical Research and Development: The company offers a wide range of preclinical services, including toxicology, pharmacology, pharmacokinetics and safety studies. These services are critical to evaluating the efficacy and safety of new drugs prior to initiating human clinical trials.
Laboratory Animal Production and Supply: $CRL is one of the world's leading suppliers of laboratory animals, particularly rodents such as mice and rats, which are used in drug research and development.
Biological and cellular therapies: The company provides services focused on the development and testing of biological products, including vaccines, monoclonal antibodies, cell therapies and gene therapies.
Genetic and diagnostic services: Charles River offers advanced genetic testing, molecular diagnostics and analysis to help research teams better understand the genetic basis of disease and optimize drug development.
In vivo and in vitro testing: The company conducts tests on living organisms (in vivo) and in laboratory conditions (in vitro), which are critical to understanding the effects of drugs and their potential side effects.
The company's profitability and cash
The company's shares are in a sideways trend to date after a significant depreciation in 2022. This channel has a range of $160-280 per share. The company is currently near its midpoint. Recent results sent the price per share down nearly 16%, but it was within the sideways trend.
The company's current market capitalization is $10.03 billion. This is where the company was before the 2019 exit. This value is also less than half of where it was at the peak in 2021. The company was most highly valued by the market at $23 billion. Today, 21,800 people work for the company.
Charles River…
CRLIn terms of the company's stock split, only 1.15% is held privately off-market. The remaining 51 million shares are distributed to investors. The debt of $CRL+3.1% is $2 billion and $840 million. It has $179 million in cash on hand.
In 2019, the company's revenue was $2.61 billion. Operating margins at the time were 9.61%. Net income was $252 million. A year later, when the pandemic broke out, the company started to have more inquiries. As a result, its sales increased to $2.92 billion and margins jumped to 12.46%. Profit that year was $364.3 million. By 2021, revenue had reached $3.54 billion. Margins fell to 11.04% and net income moved to $390.98 million. In the last two years, revenue was $3.98 billion and $4.13 billion. Margins first rose to 12.23% but last year they fell to 11.49%. So net profit was almost identical at $486.23 and $474.62 million.
The company's business is still mainly focused on the United States, which is also where the largest percentage of last year's revenue came from. However, other regions are also starting to do well and already make up a significant portion of the company's business. The U.S. brought in $2.35 billion that year. That's 56.85 of the total revenue value. In Europe, the company made $1.08 billion, which is the equivalent of 26.08% of revenue. Canada ranked third with $487 million in revenue. Asia then added $200.8 million.
The company's research-focused business generated $2.62 billion. That's 63.34% of the total revenue value for 2023. The second part that provides research animals earned the company $CRL+3.1% $792 million. Manufacturing the necessary medical devices on demand then brought in $721 million in revenue to the company.
In 2017, the company's earnings per share were $5.27. It was 2.67% above analysts' estimates. In 2018, EPS increased to $6.03. The company continued to grow through 2022. Earnings per share were $8.13 in 2020 and $11.12 in 2022. It has always managed to beat the market consensus (in this analysis period). In 2020, it was the biggest surprise to the market when earnings per share of $CRL+3.1%were 3.46% higher. But in 2023, the streak of steady growth broke. EPS fell to $10.67. Still, they remained above analysts' estimates. In the years ahead (beyond this year), EPS should start to rise again. By 2027, they could reach as high as $14.14, according to the current outlook.
But we've also seen an admirable run in revenue since 2017. The company made $1.86 billion in 2017. This value beat analysts' estimates by only 0.17%. The next year, when revenue pulled in at $2.27 billion it was above consensus by already 0.56%. In 2020, when the company's revenue was $2.92 billion it managed to beat estimates by 1.18%. Unlike earnings per share, revenue growth has not stalled in the last three years. In 2022, revenue was $3.98 billion. Last year, it was $4 billion and $130 million. This year, that figure is expected to drop by $70 million, but by 2027, revenue could reach $4.8 billion.
The company's individual sectors grew as follows. In 2017, revenue from its largest segment, which focuses on research, was $980 million. Last year, it was already $2 billion and $620 million. Research on new medical models, their subsequent sales, and other services earned the firm revenue of $493 million in 2017. But in 2023, it was already $792 million. Product manufacturing then went from $383 million in revenue to $721 million in the same time period.
Operating costs
Over the past decade, the company's management has assured investors that it can spend very proportionately to how the company is doing. As the value of its sales has grown in past and current years, the company can afford to increase its investments and spend more. In 2010, one quarter cost the company a quarter of a billion dollars. By 2016, that value had increased only slightly, reaching $300 million. But since then, the ramp-up has picked up. By 2020, the cost per quarter had reached $0.6 billion, and by 2022 it was $765 million. This year, the ramp-up has slowed and spending for the last 3 quarters has remained at a very similar level. In the last one, the company spent $874 million.
Dividend
The company is not yet sharing its profits with shareholders in the form of a dividend, but what isn't may be.
Valuation/Comparison with peers
The company's P/E stood at 26 points in 2010. But at the very end of this year, its value quickly rose to 94 as the company's earnings per share plummeted. It wasn't until 2012 that the P/E leveled off and got to a reasonable 12 points. From then until 2018, it kept rising. It got to 42 points from where it fell thanks to an EPS cut to 25 in 2019. It was then able to get to 53 points by 2021. That was when the share price was at its absolute peak. Since then, the P/PE ratio has been declining. Today, its value is 24 points.
Rivals
Agilent Technologies $A+2.6%: Founded in 1999 as an offshoot of Hewlett-Packard $HPE+4.0%, the company has since established itself as a major player in the scientific instrumentation and diagnostics industry. Agilent Technologies serves a wide range of industries including pharmaceutical, biotechnology, chemical, food processing and environmental monitoring. The company's primary focus is analytical instruments that are used for testing and measurement in a variety of scientific and industrial applications. Key products include mass spectrometers, liquid chromatographs, molecular spectroscopes and other sophisticated laboratory instruments. The company also offers software and services that enable efficient data analysis and interpretation.
Medtronic $MDT+2.0%: Medtronic is focused on improving the quality of life for patients through a broad portfolio of products that span various areas of medicine, including cardiovascular devices, neurostimulation systems, diabetes solutions, orthopedic implants, and surgical technologies. One of the company's key segments is cardiovascular care, where it offers devices such as pacemakers, defibrillators, heart pumps, and other innovative technologies to help patients with various heart conditions. In addition, the company also develops advanced neurostimulation systems that are used to treat chronic pain, neurological disorders, and other health problems.
Waters $WAT+2.2%: The company's main products are liquid chromatographs, mass spectrometers, and other analytical instruments that are used in a variety of scientific and industrial applications. These instruments play a key role in areas such as pharmaceutical research and development, biotechnology, environmental protection, and food processing. Waters is also known for its high quality columns and chemical reagents that are used in chromatographic analyses.
$CRL+3.1% - blue, $A+2.6% - orange, $MDT+2.0% - black, $WAT+2.2% - green
Almost all similar companies in the healthcare sector saw very rapid growth in 2020 and 2021 due to the fact that the world was reeling in a pandemic environment and their services were simply needed. However, once the pandemic situation calmed down, the stocks of these companies often dropped literally like pears as their revenues and earnings per share began to fall. The worst hit, of the companies compared today, was $MDT+2.0%, whose stock is trading 23.45% lower since 2020. The best performing firm is $A+2.6%, which is up 77.6% over the past 4 years and 8 months. $CRL+3.1%, which experienced the fastest growth in 2021, now attributes "only" 44.9%.
Future plans
Innovation in preclinical testing: Charles River is focused on developing and implementing advanced technologies and methodologies in preclinical studies. This includes the development of new models and technologies to simulate and evaluate human disease and therapeutic approaches.
Global Capability Expansion: The Company plans to expand its capabilities and services in new geographic markets to better meet the growing demand for preclinical and clinical research services in different regions of the world. This may include opening new laboratories, facilities and research centres.
Personalized Medicine: with the growing emphasis on personalized medicine and genomics, $CRL+3.1% is focused on integrating these approaches into its research services to support the development of more targeted and effective therapeutic strategies.
Investing in technology and digitization: The business is investing in digitization and advanced analytical tools, including automation of laboratory processes and integration of advanced data analytics tools, to improve the efficiency and quality of its services.
Outlook
The company's stock has been in a sideways trend for over a year now, from which it has not yet made a single move. Shareholders are still not satisfied with the performance of their business and are still living in misconceptions and earnings from 2020 and 2021. The stock has written down over 55% since the absolute peak reached in those very years. While its shares are currently below their fair value and are trading only 13% above their pre-Covid fall value, that doesn't mean they will reach a new peak in the coming years or even months. How do Wall Street analystsview $CRL'+3.1%s current share price ?
Of the 20 analysts surveyed, 7 of them would buy the company's stock immediately. Their outlook for the next twelve months is very positive. According to their projection, the stock could go up as much as 22.56%. If that were to happen, one share would sell on the market for as much as $250. Another analyst would also buy the stock, but his outlook is already a bit more modest, Just an 8.2% increase to $220 per share would be enough. The last 12 analysts would just hold the stock and wait for further moves. What is your view on the healthcare sector and do you hold any companies in it? Share it on the main page with the community!
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