Charles River Laboratories
Drug research services giant
Charles River Laboratories
(CRL)may be a leveraged buyout candidate because of its predictable earnings, diminished share prices and management issues, according to Morningstar. "Private equity firms have historically demonstrated a strong interest in
In Oct. 2011, private equity giants The Carlyle Group and Hellman & Friedman bought PPD (PPDI) for $3.9 billion at a 30% premium, and INC Research, owned by Avista Capital Partners and the Ontario Teachers' Pension Plan, bought Kendle International (KNDL) for $232 million in May 2011. "Charles River could be the next logical takeout candidate, despite modest leverage," writes Morningstar.So-far-unsuccessful cost cutting initiatives may also be attractive for a buyer to wrench out operational gains, while the company's stable cash flows set up nicely for a private equity acquirer. Morningstar gives Charles River Laboratories a five star rating and a fair value of $50 a share, an over 50% premium to current share prices of $32.78. The company is expected to earn $56 cents a share in its fourth quarter 2011 results due on Feb. 13, according to Zacks consensus estimates. Analysts give the company an estimated price target of $34.71 a share on 2012 revenue of $1.14 billion and profit of $107 million, according to data compiled by Bloomberg. For more on Charles River shares, see 8 biotech stocks to watch. Onyx Pharmaceuticals (ONXX), BioMarin (BMRN) and Seattle Genetics (SGEN) are Morningstar's top pharmaceutical takeover targets for a large-cap acquirer. With the retirement of two top executives, large cash stockpiles and a slow R&D pipeline for new drugs, Morningstar highlights Amgen (AMGN) as a the most likely acquirer in the pharmaceutical space. "We believe the new blood might be beneficial to the firm's productivity and reputation, and could potentially trigger a wave of acquisitions to replenish the pipeline and jumpstart the company," writes Morningstar.
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