Charles River Laboratories (CRL)

Lab services company Charles River Laboratories (NYSE:CRL) reported revenue ahead of Wall Streets expectations in Q3 CY2025, but sales were flat year on year at $1.00 billion. Its non-GAAP profit of $2.43 per share was 3.9% above analysts’ consensus estimates.

Company Overview

Named after the Massachusetts river where it was founded in 1947, Charles River Laboratories (NYSE:CRL) provides non-clinical drug development services, research models, and manufacturing support to pharmaceutical and biotechnology companies.

Companies specializing in drug development inputs and services play a crucial role in the pharmaceutical and biotechnology value chain. Essential support for drug discovery, preclinical testing, and manufacturing means stable demand, as pharmaceutical companies often outsource non-core functions with medium to long-term contracts. However, the business model faces high capital requirements, customer concentration, and vulnerability to shifts in biopharma R&D budgets or regulatory frameworks. Looking ahead, the industry will likely enjoy tailwinds such as increasing investment in biologics, cell and gene therapies, and advancements in precision medicine, which drive demand for sophisticated tools and services. There is a growing trend of outsourcing in drug development for nimbleness and cost efficiency, which benefits the industry. On the flip side, potential headwinds include pricing pressures as efforts to contain healthcare costs are always top of mind. An evolving regulatory backdrop could also slow innovation or client activity.

Charles River's competitors include other preclinical contract research organizations like Labcorp Drug Development (NYSE: LH), IQVIA (NYSE: IQV), and Thermo Fisher Scientific's (NYSE: TMO) contract research services. In the cell and gene therapy CDMO space, it competes with Catalent (NYSE: CTLT) and Lonza Group (SWX: LONN).

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $4.02 billion in revenue over the past 12 months, Charles River Laboratories has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Charles River Laboratories’s sales grew at a mediocre 7.3% compounded annual growth rate over the last five years. This fell short of our benchmark for the healthcare sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Charles River Laboratories’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.3% annually.

Charles River Laboratories also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Charles River Laboratories’s organic revenue averaged 2.3% year-on-year declines. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Charles River Laboratories’s $1.00 billion of revenue was flat year on year but beat Wall Street’s estimates by 1.1%.

Looking ahead, sell-side analysts expect revenue to grow 1.1% over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Charles River Laboratories has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 12.9%, higher than the broader healthcare sector.

Analyzing the trend in its profitability, Charles River Laboratories’s operating margin decreased by 12.4 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 11.9 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

This quarter, Charles River Laboratories generated an operating margin profit margin of 13.3%, up 1.7 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Charles River Laboratories’s decent 6.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q3, Charles River Laboratories reported adjusted EPS of $2.43, down from $2.59 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 3.9%. Over the next 12 months, Wall Street expects Charles River Laboratories’s full-year EPS of $10.55 to stay about the same.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Charles River Laboratories has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.6% over the last five years, better than the broader healthcare sector.

Taking a step back, we can see that Charles River Laboratories’s margin dropped by 3.2 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Charles River Laboratories’s free cash flow clocked in at $35.58 million in Q3, equivalent to a 3.5% margin. The company’s cash profitability regressed as it was 17.6 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Charles River Laboratories historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7%, somewhat low compared to the best healthcare companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Charles River Laboratories’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Charles River Laboratories reported $207.1 million of cash and $2.63 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $936.5 million of EBITDA over the last 12 months, we view Charles River Laboratories’s 2.6× net-debt-to-EBITDA ratio as safe. We also see its $57.77 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Charles River Laboratories narrowly top analysts’ organic revenue expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. Overall, this print had some key positives. The stock remained flat at $178.01 immediately after reporting.

Updated: December 4, 2025 at 11:10 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Charles River Laboratories.

Charles River Laboratories isn’t a terrible business, but it doesn’t pass our quality test. To kick things off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its sturdy operating margins show it has disciplined cost controls, the downside is its organic revenue declined. On top of that, its diminishing returns show management's prior bets haven't worked out.

Charles River Laboratories’s P/E ratio based on the next 12 months is 17.6x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $189.27 on the company (compared to the current share price of $183.89).