Search This Blog

Wednesday, August 28, 2019

Catalent Analyst Cites Valuation Concerns In Downgrade

KeyBanc Capital Market’s bull case for Catalent Inc CTLT 0.91% has come to an end.
The company has taken the necessary steps to gain exposure to the high-growth biologics and gene therapy space, according to the sell-side firm.

The Analyst

Donald Hooker downgraded Catalent from Overweight to Sector Weight.

The Thesis

Catalent reported in-line fourth-quarter results that were highlighted by a 4% organic revenue growth and “stable” EBITDA, Hooker said in a Tuesday downgrade note. (See his track record here.)
The company’s acquisitions are showing signs of success, including Paragon Bioservices, which contributed $29 million in revenue, while Juniper Pharmaceuticals added another $15 million, the analyst said.
The company ended the fiscal year on an encouraging note, with $646 million of development revenue at an estimated mid-to-high-single-digit organic growth rate, he said.
Catalent also introduced 193 new products in fiscal 2019 that accounted for $103 million of revenue, Hooker said.
The recent momentum should continue, as Catalent is expected to show 8% organic revenue growth rate in fiscal 2020 and the year after, the analyst said.
The Paragon Bioservices business should increase its contribution and is modeled to generate around $270 million in revenue and around $82 million of EBITDA in fiscal 2020, with 30% or more revenue growth afterwards, he said.
Company-wide EBITDA is now modeled to grow at 10% over the next few years, Hooker said.
Yet Catalent’s free cash flow is likely to be limited to 20% to 30% of EBITDA due to heavy capital spending, the analyst said. The company’s “flexibility” could be impacted by its high debt ratio of around 4.2 times EBITDA, he said.
KeyBanc’s bullish stance on Catalent datesto March 2018, but shares are now trading near all-time highs in terms of a dollar amount and valuation at 15 times 2020 EBITDA, the sell-side firm said.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.