Goldman favors Covance shares over Charles River

A Goldman Sachs analyst downgraded Charles River Laboratories International Inc. Tuesday, saying the contract research organization's share price now better reflects the company's attractive fundamentals. He thinks there is more potential for investors to see upside in shares of rival CRO, Covance Inc.

Analyst Randall Stanicky lowered his rating on Charles River to "Neutral" from "Buy," noting that shares have risen in range of his price target since he upgraded the stock in March ahead of the company's earnings report and analyst meeting.

While he still believes Charles River will benefit from demand for preclinical research services, Stanicky thinks shares already price in much of the company's strength.

Meanwhile, Covance shares have fallen about 5 percent since the company reported earnings in late April on concerns over bookings, soft preclinical performance and speculation about a potential Covance bid for rival Pharmaceutical Product Development Inc.

But Stanicky thinks Covance will report a strong second quarter, reversing the soft first-quarter performance that has weighed on the stock, and continues to believe a merger between the firms is unlikely.

"We had the opportunity to meet with Covance management at the Drug Information Association conference yesterday and continue to believe that 2Q is tracking well and that recent strategic contracting activity should translate into stronger bookings throughout 2008," he wrote in a note to clients.

In afternoon trading, shares of Charles River dipped 55 cents to $64.33 and Covance gained $1.12 to $82.90.