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Investing.com -- Barclays struck a more cautious but selective tone in its third-quarter U.S. life science tools and diagnostics preview, upgrading Charles River Laboratories while cutting Medpace.
Industry end markets appear stable and are expected to improve incrementally, the bank’s analysts said, though the path back to normalized growth will be slow.
Management teams have taken a conservative approach to 2026 outlooks, with Barclays now assuming 2%-5% growth, likely toward the lower end of that range.
“We think this time is different” compared to prior rebounds, analysts led by Luke Sergott wrote, adding that a pharma bottom and conservative estimates suggest the latest round of cuts may be the last.
On ratings, Barclays raised Charles River Labs to Overweight from Equal Weight with a price target of $195, up from $155. The analysts cited signs that drug discovery cancellations have begun to normalize and that bookings stabilized about a year ago.
Checks suggest large pharma and bigger biotech budgets are holding up, with management even hiring additional staff to meet demand.
“We think this is a strong signal that mgmt has confidence that things are not going to roll over in a meaningful way near term,” the analysts said.
Valuation remains well below trough levels, leaving room for multiple expansion as earnings improve.
In contrast, Medpace was downgraded to Underweight from Equal Weight, with the target cut to $425 from $450. Barclays pointed to valuation as the main driver, noting shares have rallied sharply and now trade at peak multiples on peak earnings.
It warned of risks in the second half of 2026, with faster-burning work and subdued bookings potentially creating an “air pocket” if traditional backlog is not replenished.
While Medpace continues to win available contracts, analysts said its premium valuation over peers looks stretched.
“What we struggle to understand is how MEDP has a bigger market cap than ICLR when ICLR has 4x the revenue, 12x the backlog and operates relatively the same business model,” they noted.
Barclays maintained a Neutral sector view, arguing that "Tools are back” but the recovery will mirror pharma—slow and steady.
The analysts noted that Thermo Fisher and Danaher dominate investor conversations and are seen as bellwethers for a broader recovery.
Healthcare remains the most under-owned sector, they added, with life science tools the most under-owned subsector, which could limit the speed at which long-only and generalist funds return to the space.