Charles River Laboratories International Inc. (NYSE: CRL), a provider of preclinical and clinical laboratory services, received a downgrade in its stock rating from Citi.
The firm lowered its rating from Neutral to Sell and adjusted the price target to $175 from the previous $215.
The downgrade is attributed to anticipated challenges within the large pharma customer group, which constitutes roughly 30% of the company's revenues.
Concerns center around the impact of the Inflation Reduction Act (IRA) and adjustments in the customer's pipeline, which are expected to be prolonged.
According to the firm, these customers are likely to prioritize clinical development and commercially viable indications over the discovery of new therapies.
The firm anticipates that these headwinds will affect the company's Discovery (NASDAQ:WBD) and Safety Assessment (DSA) segment, leading to continued price and mix challenges. These factors are believed to be not fully accounted for in the current consensus estimates for the company's top-line growth and margins.
In other recent news, Charles River Laboratories has experienced some significant developments. The company reported a 3.2% decrease in its second-quarter revenue, amounting to $1.03 billion, primarily due to lower sales in the Discovery Services and Safety Assessment (DSA) segments.
In response, Charles River has implemented cost-saving measures and launched a $1 billion stock repurchase program. The company also revised its full-year revenue outlook, projecting a decline of 3% to 5% on an organic basis.
Analyst firms like Mizuho Securities, TD Cowen, JPMorgan, and Baird have adjusted their outlooks on Charles River, citing concerns about the DSA segment and weaker demand. Despite these challenges, Charles River Labs (NYSE:CRL) reiterated its guidance in the Research Models and Services (RMS) segment and slightly increased projections in its Manufacturing support area.
In addition, Charles River has announced strategic collaborations with CEBINA GmbH and Insightec. The partnership with CEBINA aims to advance the DanubeNeuro program, which focuses on developing treatments for neurodegenerative diseases, while the collaboration with Insightec seeks to enhance drug discovery and preclinical development in neuroscience.
InvestingPro Insights
In light of Citi's downgrade of Charles River Laboratories International Inc. (NYSE:CRL), it's worth considering additional financial metrics and expert insights. According to InvestingPro data, CRL's market capitalization stands at $10.17 billion, with a P/E ratio of 23.35. The company's revenue for the last twelve months as of Q2 2024 was $4.08 billion, showing a slight decline of 2.41% compared to the previous period.
InvestingPro Tips highlight that 15 analysts have revised their earnings downwards for the upcoming period, aligning with Citi's concerns about potential challenges in the company's large pharma customer segment. This could impact the DSA segment's performance, as mentioned in the article. However, it's also noted that analysts predict the company will remain profitable this year, which may provide some reassurance to investors despite the downgrade.
The company's profitability over the last twelve months, as indicated by another InvestingPro Tip, suggests resilience in its business model. This could be a factor for investors to consider when weighing the potential impact of the challenges outlined in Citi's analysis.
For those seeking a more comprehensive analysis, InvestingPro offers additional tips and insights that could provide a fuller picture of CRL's financial health and prospects. Currently, there are 11 more InvestingPro Tips available for Charles River Laboratories, which could offer valuable context to the recent downgrade and help investors make more informed decisions.
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