Catalent stock faces downgrade as buyout closes in, visibility remains low - Baird

On Tuesday, Baird has lowered its rating on Catalent (NYSE:CTLT) stock from Outperform to Neutral, setting a price target of $63.50. The adjustment follows a period of operational difficulties for the company, which has seen a decline in revenue and profit in the fiscal year 2023.

Catalent faced underutilization of manufacturing capacity, regulatory issues at some facilities, and delays in financial reporting after the pandemic-driven surge in business due to COVID-19 vaccine production.

The company, however, ended the fiscal year 2024 on a positive note, with improved revenue and margins, largely due to success in its Biologics segment, unprecedented business development, and reduced financial leverage. Despite these improvements, Catalent's free cash flow for the fourth quarter of FY24 was below expectations, attributed to a rise in contract assets from robust business development.

Catalent's pending buyout offer of $63.50 per share by Novo Holding, announced before February 5, 2024, has led to a lack of commentary, access, or updated guidance from the company for three quarters. Moreover, the visibility of the backlog reported in the FY24 10-K has decreased compared to the previous year, which has affected confidence in financial modeling.

Baird anticipates the buyout deal to be finalized by the end of calendar year 2024. However, due to the inability to confidently project valuation in the event the deal does not proceed as expected, Baird has decided to adopt a cautious stance. The firm acknowledges the possibility of reassessing its position if the deal falls through and Catalent provides an updated company outlook and revised forecast.

In other recent news, Catalent, Inc. reported its fourth quarter and fiscal year financial results. The company's Q4 earnings and revenue exceeded analyst predictions, with an adjusted earnings per share of $0.65 and revenue reported at $1.30 billion, marking a 23% increase year-over-year.

The Biologics segment of Catalent demonstrated significant growth, with revenue rising 51% year-over-year to $605 million. Additionally, the Pharma and Consumer Health segment revenue increased by 7% to $697 million.

Adjusted EBITDA for the quarter more than doubled to $305 million, compared to the previous year. For the full fiscal year 2024, Catalent reported net revenue of $4.38 billion, a 3% increase from fiscal 2023. However, the company posted a net loss of $1.04 billion for the year, primarily due to goodwill impairment charges.

In other significant developments, Catalent is currently being acquired by Novo Holdings in a $16.5 billion deal announced earlier this year, expected to finalize by the end of 2024. These are the recent developments within the company.

InvestingPro Insights

As Catalent (NYSE:CTLT) navigates through its operational challenges and the pending buyout offer, investors are closely monitoring its financial health and stock performance. According to recent data from InvestingPro, Catalent has a market capitalization of $10.84 billion and is trading near its 52-week high, with the price at 97.63% of this peak. Despite the setbacks in the previous fiscal year, Catalent has shown a revenue growth of 23.32% in the last quarter of FY2024, ending the year with a revenue of $4.381 billion.

InvestingPro Tips suggest that Catalent's net income is expected to grow this year, and analysts predict the company will be profitable. This is a notable turnaround considering the company was not profitable over the last twelve months. Additionally, Catalent's liquid assets exceed its short-term obligations, providing a cushion for operational needs. For investors seeking stability, it's worth noting that the stock generally trades with low price volatility. These insights, along with over 8 additional InvestingPro Tips available for Catalent, can offer valuable context for investors considering the company's stock in light of Baird's recent rating adjustment and the ongoing buyout process.

For those looking for a deeper analysis, the full suite of InvestingPro Tips for Catalent can be found at: https://www.investing.com/pro/CTLT, offering a comprehensive view of the company's financial outlook and stock performance.

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