Catalent Inc. (CTLT) — Overpriced With Decent Growth Factors

Catalent returned losses of -52.3% last year, with its stock price reaching a high of $115.33 and a low of $40.69. Over the same period, the stock underperformed the S&P 500 index by -45.0%. As of April 2023, the company's 50-day average price was $66.68. Catalent, Inc., together with its subsidiaries, develops and manufactures solutions for drugs, protein-based biologics, cell and gene therapies, and consumer health products worldwide. Based in Somerset, NJ, the large-cap Health Care company has 19,000 full time employees. Catalent has not offered a dividend during the last year.

The Company May Be Profitable, but Its Balance Sheet Is Highly Leveraged:

2019-06-30 2020-06-30 2021-06-30 2022-06-30
Revenue $2,518,000 $3,094,300 $3,998,000 $4,828,000
Gross Margins 32.0% 31.8% 33.8% 34.0%
Operating Margins 11.6% 13.1% 16.2% 15.6%
Net Margins 5.46% 7.13% 14.63% 10.75%
Net Income $137,400 $220,700 $585,000 $519,000
Interest Cost -$110,900 -$126,100 -$110,000 -$123,000
Depreciation & Amort. -$228,600 -$253,700 -$289,000 -$378,000
Earnings Per Share $0.9 $1.14 $3.11 $1.64
Diluted Shares 146,000 152,000 170,000 180,090
Free Cash Flow $29,600 -$25,500 -$253,000 -$221,000
Capital Expenditures -$218,100 -$465,800 -$686,000 -$660,000
Net Current Assets -$3,106,600 -$2,584,700 -$2,279,000 -$2,796,000
Current Ratio 2.08 2.57 2.44 2.72
Long Term Debt $2,882,800 $2,945,100 $3,166,000 $4,171,000
Net Debt / EBITDA 5.23 3.23 2.11 3.39

A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:

Catalent has a trailing twelve month P/E ratio of 40.7, compared to an average of 24.45 for the Health Care sector. Based on its EPS guidance of $3.12, the company has a forward P/E ratio of 21.4. According to the 28.2% compound average growth rate of Catalent's historical and projected earnings per share, the company's PEG ratio is 1.44. Taking the weighted average of the company's EPS CAGR and the broader market's 5-year projected EPS growth rate, we obtain a normalized growth rate of 10.7%. On this basis, the company's PEG ratio is 3.79. This suggests that these shares are overvalued. In contrast, the market is likely undervaluing Catalent in terms of its equity because its P/B ratio is 1.6 while the sector average is 4.16. The company's shares are currently trading 33.7% above their Graham number.

Catalent Has an Analyst Consensus of Strong Upside Potential:

The 12 analysts following Catalent have set target prices ranging from $40.0 to $86.0 per share, for an average of $65.75 with a buy rating. As of April 2023, the company is trading 1.4% away from its average target price, indicating that there is an analyst consensus of strong upside potential.

Catalent has an average amount of shares sold short because 4.0% of the company's shares are sold short. Institutions own 106.1% of the company's shares, and the insider ownership rate stands at 0.37%, suggesting a small amount of insider investors. The largest shareholder is the Vanguard Group, Inc., whose 11% stake in the company is worth $846,010,141.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.