On Wednesday, Jefferies analyst revised the price target for shares of Charles River Laboratories International Inc. (NYSE:CRL) shares, reducing it to $169 from $196, while continuing to recommend a Hold rating on the stock. The adjustment comes in response to expected declines in organic revenue and challenges in the company's Microbial Solutions (MS) segment.
The analysis indicates that Charles River Labs (NYSE:CRL)' Discovery (NASDAQ:WBD) and Safety Assessment (DSA) segment is likely to experience a low to mid-single-digit percentage decline as major pharmaceutical companies reduce spending. Although there is a slight improvement in the biotech sector, it is not significant enough to offset the declines. The anticipated decrease in DSA revenue and margins had been previously communicated and was not unexpected.
However, the MS segment presents new concerns, with a forecasted 5% decline in 2025. The company is set to lose a key cell therapy customer to a competitor, and another commercial cell therapy client is projected to reduce its business as well. This information comes after Vertex Pharmaceuticals (NASDAQ:VRTX) signed a long-term agreement with Lonza for the production of Casgevy, which Charles River Labs had been manufacturing.
Despite management's earlier statements that Vertex would not remove Charles River Labs as a partner, it now appears that their involvement is diminishing or potentially ending.
The report also mentions the possibility of impairments on goodwill and long-term assets in the MS segment, which could affect the company's financials. In light of these developments, Windley has adjusted the 2025 revenue estimates for Charles River Labs downward by approximately 5%.
Management expects operating margins (OM) to decrease modestly in 2025, but the analyst predicts that margin pressures from both DSA and MS will result in a 100 basis point contraction in OM. Despite these changes, fourth-quarter estimates remain unchanged, but the forecast for 2025 earnings per share (EPS) has been lowered by 5.6% to $9.38.
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