Charles River Laboratories

Methodology

Charles River's contract research organization business generates relatively predictable earnings tied to pharmaceutical R&D spending, making fair value calculations reasonably reliable. The long-cycle nature of drug development provides multi-year revenue visibility from existing backlogs. Fair value works well when accounting for mid-single-digit organic growth from biopharma outsourcing trends.

Methodology

Charles River typically trades at PEG ratios between 1.5-2.5x, reflecting premium valuations for its essential role in drug development and high switching costs. The company's integrated portfolio from research models to safety assessment commands higher multiples than pure-play CROs. PEG works effectively given consistent execution and secular tailwinds from outsourcing.

Methodology

Charles River doesn't pay dividends and reinvests all cash flow into capacity expansion and strategic M&A to broaden service offerings. Management focuses on building competitive moats through scientific capabilities rather than returning cash. Total return depends entirely on earnings compounding through market share gains and pricing power.