Charles River Laboratories Is A Leader In Biopharma Outsourcing, KeyBanc Says In Upgrade

Charles River Laboratories Intl. Inc (NYSE: CRL), a preclinical and clinical laboratory service provider to the pharmaceutical, medical device and biotechnology industries, is "by far" an industry leader, according to KeyBanc Capital Markets. 

The Analyst

Analyst Donald Hooker upgraded Charles River Laboratories from Sector Weight to Overweight with a new $130 price target.

The Thesis

Charles River boasts the "most comprehensive" set of preclinical research products and services, which makes it a strategic outsourcing partner that its peers can't match, Hooker said in the upgrade note.

The company's strategic positioning should help it sustain 6 percent or more revenue growth over the next three years along with expanding operating margins derived from up to $16 million in cost synergies tied to the early 2018 acquisition of MPO Research.

Investor concerns over the "sensitivity of biopharma R&D to capital market conditions" are overblown, the analyst said. A "friendly" regulatory environment and the absence of internal capacity at major biopharmaceutical companies makes it unlikely preclinical research will be insourced again, he said. 

Charles River's stock doesn't accurately reflect its strategic positioning, as its valuation remained "stable" at a time when the valuation of many peers rose "significantly," Hooker said. The disconnect creates an attractive opportunity for investors, with Charles River's stock trading at a 13-percent discount to the comparison group versus a historical average of a 7-percent premium.

Price Action

Charles River Laboratories shares were trading higher by 0.5 percent premarket Friday. 

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