Catalent's Activist Board Presence To Boost Operational Recovery, Analyst Says

Tuesday, Catalent Inc CTLT reported Q4 adjusted EPS of $0.09, missing the consensus of $0.10, with sales of $1.07 billion, down 17% Y/Y, slightly above the consensus of $1.05 billion.

The company forecasts FY24 sales of $4.30 billion-$4.50 billion versus the consensus of $4.21 billion and $4.28 billion in FY23.

The company also finalized a deal with activist investor Elliott Investment Management. 

William Blair analysts Max Smock and Christine Rains write that activist presence on Catalent board and creating the strategic review committee will speed up the company's operational recovery and enhance supervision. 

The company's projected top-line growth for fiscal 2024 stands at a commendable +3% Y/Y, propelled by an anticipated 30% growth in the non-COVID Biologics segment and a strong resurgence in the Pharma and Consumer Health segment, offset by an anticipated decline of about $500 million in COVID revenues.

Conversely, the company's margin outlook did not meet William Blair's expectations, projecting a mere 1% growth in adjusted EBITDA from the low 2023 levels. 

Moreover, about two-thirds of the consolidated EBITDA is anticipated to be realized in the latter half of the year. While the company's 2024 growth targets, especially in Biologics, seem achievable, the ongoing operational issues pose a considerable execution risk for the upcoming year. 

Given that Catalent's current valuation is marginally above its competitors, it adds another layer to the considerations.

The analyst keeps the Market Perform Rating on the stock.

Price Action: CTLT shares are up 2.05% at $48.79 on the last check Wednesday.