Charles River Laboratories (CRL): A Stock With a Possible Large Margin of Safety

Charles River Laboratories (CRL) “provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts.” CRL recently lowered guidance for 2009 so the stock price has taken a hit, which can mean this might be a great entry point for a value investor as the margin of safety has undoubtedly improved.

Here is some historical data for CRL (click for larger image):

CRL has a current market cap of about $2.2 billion. From 2002 to 2008, CRL has grown its owner earnings at about 9% compounded. Performing a DCF analysis, using a 9% discount rate, a multiple of 18, and assuming CRL can grow owner earnings at 7% per year, I estimate that CRL’s intrinsic value is about $66 per share. With a current share price of $33, my estimate of an intrinsic value of $66 per share gives us a large margin of safety of 50%.

Another thing I like to look for with a company is what other funds or money managers are holding it in their portfolios and whether or not that holding is a large percentage of the entire portfolio. With CRL, there are several funds out there holding a concentrated position in CRL:

• Blue Harbor Group, LP – 9.76%
• Olstein Capital Management, LP – 4.33%
• Westport Advisers LLC – 3.47%
• Hahn Capital Management LLC – 3.32%

In summary, I think CRL could be a good bet. With a large margin of safety, even if you’re off by 20%, you’ll still most likely get a decent return on your investment.