Deutsche Bank research has lowered its forecasts for EPS growth for contract research organizations (CROs) and has cut its price target on two stocks - Charles River Laboratories ( NYSE: CRL ) and ICON plc ( NASDAQ: ICLR ).
"We stress tested our models for enduring macro headwinds and conclude that the public CROs can grow 2023 EPS in the high-single-digits to low-double-digits on average versus market expectations for a ~(20%) contraction in 2023 EPS," said Deutsche Bank analyst Justin Bowers in a research note on Thursday.
According to Bowers, margin contraction due to execution risk and continued interest rate increases pose the greatest risks to 2023 estimates for CROs, followed by sustained pauses in biotech equity raises.
The analyst lowered expectations for 2022 / 2023 EPS for CROs by 2% and 4% on average.
Bowers rates CRL buy, but cut the price target on the stock by $60 to $290, which represents a 35.3% upside to CRL's last closing price of $214.39.
Bowers sees CRL as the "clear market leader" in early stage drug development, and believes CRL will take advantage of that position by continuing to drive organic growth and making "smart tack-on" acquisitions.
The Deutsche Bank analyst rated ICLR buy, but slashed the price target by $25 to $285, which represents a 38.4% upside to ICLR's last closing price of $205.98.
The buy rating "reflects our view that ICLR is poised to make market share gains following the PRA Health merger with conservative revenue synergy targets leading to potential earnings upside in out years," said Bowers.
CRL stock had lost 2.5% to $208.98 in afternoon trading while ICLR was down 2.3% to $201.30 amidst weaker broader U.S. markets .
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Deutsche Bank lowers estimates for publicly listed CROs, cuts PT on Charles River, ICON