Charles River Laboratories International Inc (CRL, Financial) has seen a daily gain of 3.99% and a 3-month gain of 14.25%. With an Earnings Per Share (EPS) (EPS) of 9.67, the question arises: is the stock significantly undervalued? This article presents a detailed valuation analysis of Charles River Laboratories International, encouraging readers to delve into the subsequent sections for a comprehensive understanding.
An Overview of Charles River Laboratories International
Founded in 1947, Charles River Laboratories International is a leading provider of drug discovery and development services. Its research model & services segment is the foremost provider of animal models for laboratory testing, breeding, and delivering animal research models with specific genetic characteristics for preclinical studies worldwide. The discovery & safety assessment segment encompasses services required for early drug development, including discovery services. The manufacturing support segment includes microbial solutions, providing in vitro (non-animal) testing products, biologics testing services, and avian vaccine services.
The company's stock price currently stands at $214.47, with a market cap of $11 billion. The GF Value, an estimation of its fair value, is $325.55, indicating that the stock might be significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates.
According to our calculations, Charles River Laboratories International's stock appears to be significantly undervalued. The GF Value Line, our estimate of the fair value at which the stock should be traded, suggests that the stock's future return is likely to be higher if its price is significantly below the GF Value Line, as is the case currently.
Given that Charles River Laboratories International is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Evaluating Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss for investors. It's crucial to review a company's financial strength before purchasing shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Charles River Laboratories International has a cash-to-debt ratio of 0.06, ranking worse than 92.83% of companies in the Medical Diagnostics & Research industry. Its overall financial strength is 5 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Charles River Laboratories International has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.10 billion and an EPS of $9.67. Its operating margin is 16.38%, ranking better than 77.78% of companies in the Medical Diagnostics & Research industry. Overall, the profitability of Charles River Laboratories International is ranked 9 out of 10, indicating strong profitability.
Growth is a critical factor in a company's valuation. The 3-year average annual revenue growth rate of Charles River Laboratories International is 13.7%, ranking better than 57.43% of companies in the Medical Diagnostics & Research industry. The 3-year average EBITDA growth rate is 19.3%, ranking better than 60.73% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) can offer insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. The ROIC should ideally be higher than the WACC. For the past 12 months, Charles River Laboratories International's ROIC is 7.67, and its WACC is 9.41.
Conclusion
In conclusion, the stock of Charles River Laboratories International appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 60.73% of companies in the Medical Diagnostics & Research industry. To learn more about Charles River Laboratories International's stock, you can check out its 30-Year Financials here.
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