Seeking Alpha
Long/short equity, deep value, special situations, growth
Profile| Send Message|
( followers)  


  • The company beat 2Q consensus on the top and bottom lines.
  • We’re still bullish on the company’s long-term business prospects, but note that it looks fully valued.
  • We felt the company could top 2Q estimates given the strength it’s seeing in customer acquisition of mid- to large-pharma companies.

Charles River Labs (NYSE:CRL) managed to post 2Q earnings of $0.97 a share (crushing consensus of $0.75) and revenues were $341 million (beating $328 million consensus). And despite lowering full year 2014 EPS guidance from $2.64-$2.74 to $2.60-$2.70, shares are up 12% over the last month.

Since we first covered Charles River back in June of last year, shares are up 42%. The stock trades right at the top end of our price target range - $60. As we noted last year:

Its research model segment has been constrained of late due to tight biopharma budgets. However, with fiscal 2013 budgets in place, revealing more purchasing power, this bodes well for CRL. The other thing boding well for CRL is that the demand for pharma development outsourcing is becoming more and more popular. CRL's service offerings are becoming more popular with large and mid-size biopharma companies, which are looking to lower cost structures.

With 2Q results, management noted that the reason for the beat was its sales efforts in mid-tier clients. But it's also having discussions with current clients (attempting to penetrate its current customer base) about outsourcing the entire drug discovery and development process to Charles River.

And despite the fact that the company is still expected to grow EPS at an annualized 10% over the next half decade, its 26x trailing P/E is above its historical average 22x. We would look to take profits for the time being given the fact that the valuation is less compelling.

Source: Update: Charles River Labs Earnings

Check out Seeking Alpha’s new Earnings Center »