Charles River & ICON: Two Leaders in Clinical Research

06/23/2020 5:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

We recently reviewed mid-cap stocks with market values below $15 billion that were also generating solid operating momentum and boasting solid financial strength, suggests Richard Moroney; here, the editor of Dow Theory Forecasts, discusses two clinical research firms that earn his long-term buy rating.

As a clinical-research organization (CRO), Charles River Laboratories International (CRL) gets hired by biotechnology and pharmaceutical companies to test new drugs, especially in the early stages of development. 

Although the coronavirus outbreak has disrupted drug trials throughout the industry, estimate-revision trends for Charles River remain favorable, with the consensus calling for growth of 2% in 2020, followed by 16% in 2021. 

With a market value of $8.8 billion, Charles River ranks among the largest members of the S&P Midcap 400 Index. Its shares are up 41% since the end of March, outpacing the S&P 400's 25.5% gain. At 26 times estimated 2020 profits, Charles River trades at a 7% discount to the industry median. 

ICON (ICLR)  is also a clinical-research organization (CRO); it focuses on late-stage development. The drug industry has benefited from the fading presidential prospects for progressive candidates who would likely try to curb rising drug prices. 

But ICON has warned of a downturn in the June and September quarters due to the coronavirus slowing patient enrollment in drug trials and new trials being put on hold.

The firm's per-share profits are projected to fall 15% in 2020 but rebound 26% in 2021. ICON shares trade at 27 times estimated 2020 earnings, 4% below the median S&P 1500 Index life-sciences stock and 21 times projected 2021 profits, a 13% discount to their industry median. 

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