Street Calls of the Week
Investing.com - Barclays downgraded Gerresheimer AG (BS:GXId) stock to Equal Weight from Overweight and slashed its price target to €23 from €64, citing limited visibility and lack of near-term catalysts after multiple profit warnings.
The pharmaceutical packaging manufacturer has issued four profit warnings since September 2024, with the latest one last week reducing its FY25 organic revenue growth guidance to -4% to -2% from 0% to +2% previously.
Barclays analysts note the company did not reiterate its medium-term targets of 6-9% organic revenue growth and 23-25% adjusted EBITDA margin.
Barclays forecasts Gerresheimer will achieve only about 4% organic revenue growth and 18.8-19.5% adjusted EBITDA margins over FY26-28E, significantly below the company’s previous targets.
The firm’s EBITDA estimates are now 12-15% below Bloomberg consensus expectations.
Gerresheimer’s balance sheet remains stretched with leverage expected to increase from 2.3x in November 2023 to 4.8x by November 2025. Due to significant growth capital expenditures, the company’s cumulative free cash flow over the last three years is negative €200 million, and Barclays doesn’t expect it to generate meaningful free cash flow before FY29E.
The potential sale of Gerresheimer’s moulded glass business, which represents about 30% of total revenues, could help deleverage the balance sheet, but Barclays believes operational challenges make it unlikely a buyer would pay a premium multiple for the business.