KeyBanc Capital Markets downgrade Gerresheimer as PE Bid offers limited upside

Investing.com -- Gerresheimer AG (ETR:GXIG) has been downgraded to “sector weight” from “overweight,” by analysts at KeyBanc Capital Markets following reports of a private equity bid that offers limited upside potential for shareholders. 

The downgrade comes amid ongoing talks between the company and private equity firms, with a non-binding bid of €90 per share—about a 20% premium—reported by Reuters. 

Despite the premium, analysts believe due diligence and regulatory approval risks could keep the stock trading at a discount to the offer price.

Gerresheimer had previously confirmed discussions with private equity investors, and recent reports suggest that a consortium led by KKR and Warburg Pincus has made a non-binding offer. 

However, analysts argue that the offer does not provide enough upside to justify maintaining an “overweight” rating. 

As a point of comparison, Novo Holdings’ acquisition of contract development and manufacturing firm Catalent (NYSE:CTLT) was completed with a significantly higher premium of 47.5%, even as Catalent faced regulatory challenges and struggled with profitability in cell and gene therapy production.

In contrast, Gerresheimer’s exposure to the booming GLP-1 market—driven by demand for diabetes and weight-loss drugs—remains relatively small, contributing just 5% of its expected revenue in fiscal year 2024 and projected to grow to 10% in 2025.

The downgrade also takes into account Gerresheimer’s latest earnings outlook, which reflects a weaker-than-expected environment in the cosmetics and food and beverage packaging markets. 

While the company reported organic growth in its Primary Packaging (NYSE:PKG) Glass segment for the first time in five quarters during the fourth quarter of 2024, half of this business is tied to non-healthcare industries such as cosmetics and food packaging, which continue to face headwinds. 

The cosmetics sector, in particular, has been hit by soft consumer spending, which analysts attribute to a post-pandemic normalization and macroeconomic uncertainty.

Global cosmetics sales grew by 10% in 2023, according to McKinsey & Co., but most of that increase was driven by price hikes rather than volume growth. 

Recent trends underscore continued challenges in this space: beauty giant L’Oreal saw a 3% decline in its North Asia sales in 2024, while German beauty retailer Douglas Group recently lowered its 2025 sales and profit guidance due to deteriorating consumer sentiment.

KeyBanc analysts have updated their estimates for Gerresheimer, lowering their fiscal year 2025 revenue projection by approximately €30 million to account for weaker performance in cosmetics and food and beverage packaging, which together make up about 22% of the company’s overall revenue. 

The brokerage now expects Gerresheimer to post organic revenue growth of 1.6% in 2025 and 8.0% in 2026. 

Growth in the Plastics & Devices segment, which includes GLP-1-related contract manufacturing, is expected to accelerate from €104.5 million in 2024 to €210 million in 2025, contributing to a 16% organic growth rate in the segment. 

However, this growth is offset by a more subdued 1.5% growth projection for the Primary Packaging Glass business.

At its current trading price of approximately €73 per share, Gerresheimer is valued at an enterprise value-to-EBITDA multiple of 6.9x based on fiscal year 2025 consensus estimates, and 6.1x for 2026. 

This is well below sector peers, which trade at around 21.8x and 22.0x for 2025 and 2026, respectively.

Analysts at KeyBanc view Gerresheimer’s current valuation as fair given the uncertainties surrounding the €90 private equity bid and the risks tied to due diligence and regulatory approvals.

Risks remain for the company beyond the potential buyout. While investors see GLP-1 contract manufacturing as a key long-term growth driver, the emergence of oral alternatives to injectable versions could shift market dynamics. 

Additionally, Gerresheimer’s manufacturing operations are highly energy-intensive, making it vulnerable to raw material cost fluctuations. 

Regulatory risks also persist, as inspections from customers and authorities such as the U.S. Food and Drug Administration could impact future revenue. 

The company’s international exposure—44% of its revenue comes from outside Europe—means that currency fluctuations pose another potential challenge.