3 Reasons Morgan Stanley Is Bullish On AptarGroup

The bullish case for packaging solutions company AptarGroup, Inc. ATR is based on expectations for upside versus consensus, new market opportunities and its exposure to the pharmaceutical sector being "mispriced," according to Morgan Stanley.

The Analyst

Morgan Stanley's Neel Kumar initiated coverage of Aptar with an Overweight rating and $144 price target.

The Thesis

Aptar's stock already trades at a multiple versus its packaging peers but remains justified amid expectations for the company to outperform versus consensus estimates, Kumar wrote in the note. The company's EBITDA should come in 4% to 7% above consensus estimates in 2020-2021 due to: 10% core growth in Pharma where EBITDA margins are around 36%, expectations for restructuring initiatives to drive 200 basis points of EBITDA margin expansion and consistent market out performance in the Food + Beverage business.

Other Products

Meanwhile, Kumar said the company's opportunities in the nasal spray market is not embedded in current estimates. Specifically, investors may be overlooking the true potential in nasal spray products which can be used to treat people suffering from schizophrenia, Parkinson's disease, autism, PSVT and obesity. Even if Aptar captures a fraction of market share from traditional delivery routes, it faces a "significant" opportunity.

Aptar's pharma business is more like a drug delivery device company than a packaging company, the analyst wrote. As such, the pharma business warrants a superior multiple valuation at 18 times, which is towards the high-end of the peer range. The more traditional packaging business command a multiple that is more in-line with its peers at 10.5 times.

Price Action

Shares of Aptar closed Monday lower by 0.5% at $123.99.

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