On Monday, Evercore ISI adjusted its financial outlook for Charles River Laboratories International Inc. (NYSE: CRL), a provider of preclinical and clinical laboratory services for the pharmaceutical, medical device and biotechnology industries. The firm increased its price target on the company's shares to $300 from $265, while maintaining an Outperform rating.
The revision reflects a more optimistic view on the demand from the biotech and pharmaceutical end markets. This anticipated increase in demand is expected to contribute to stronger bookings and revenue, potentially starting as early as the second quarter of the year.
This change in forecast is also underpinned by the belief that the market has underestimated the profitability of Charles River Labs (NYSE:CRL)' Manufacturing segment, particularly as the Contract Development and Manufacturing Organization (CDMO) business shows signs of recovery.
Manufacturing, which represents approximately 17% of the company's 2023 revenue, is composed of three distinct businesses: biologics, microbial, and the CDMO. Each has a different profitability profile. Despite the volatility in demand throughout 2023, Evercore ISI predicts a 10% increase in 2024 Manufacturing Adjusted Operating Income (AOI) compared to the consensus, due to high incremental margins as the sector recovers.
This potential growth in Manufacturing AOI could add about 34 cents to the company's earnings per share (EPS), reinforcing confidence in Charles River Labs' ability to meet or exceed the midpoint of its 2024 guidance.
The firm has also updated its EPS estimate for Charles River Labs to $11.15 for the year 2024. The new price target of $300 is based on a 17 times multiple of the projected 2024 EBITDA and a 27 times multiple of the projected P/E.
This reassessment comes as Evercore ISI sees a brighter financial future for the company, driven by the recovery and growth in the Manufacturing and DSA (Discovery (NASDAQ:WBD) and Safety Assessment) segments.
InvestingPro Insights
As Evercore ISI updates its financial outlook for Charles River Laboratories (NYSE: CRL), real-time data from InvestingPro provides additional context for investors. With a market capitalization of $13.91 billion and a P/E ratio of 29.19, Charles River Laboratories is trading near its 52-week high, which suggests a strong market confidence in the stock.
The company's revenue for the last twelve months as of Q4 2023 reached $4.13 billion, with a gross profit margin of 37.03%, indicating robust profitability in its operations.
InvestingPro Tips reveal that analysts predict the company will be profitable this year, which aligns with Evercore ISI's optimistic view on the demand from the biotech and pharmaceutical end markets.
The company has seen a large price uptick over the last six months, with a 38.25% total return, reflecting investor enthusiasm for its growth prospects. It's also worth noting that Charles River Labs does not pay a dividend, which may appeal to investors looking for reinvestment of profits into the company's growth rather than immediate income.
For those looking to delve deeper into Charles River Laboratories' financials, there are additional InvestingPro Tips available, providing a comprehensive analysis that could further inform investment decisions. To explore these insights, visit https://www.investing.com/pro/CRL and remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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