Charles River Earnings: Near-Term Challenges Amid Cautious Client Spending; Positive Long Term

Narrow-moat Charles River Laboratories ended 2023 with revenue of $4.13 billion, representing growth of nearly 4% from the prior year. The company has continued to experience pressure from cautious client spending amid macroeconomic challenges, as cancellations have been elevated compared with historical levels and customers have reprioritized their pipelines. Despite these near-term challenges, we think these macroeconomic issues will improve over our forecast period. We have a positive long-term outlook based on the company’s leading position in the industry and steadily increasing demand for preclinical outsourcing services as drug development continues to become more complex with a greater focus on biologics and cell and gene therapies. We maintain our fair value estimate of $260 per share, and we now view shares as fairly valued as they have moved into 3-star territory.