What’s Next For Catalent Stock After A 50% Rise This Year?

CTLT: Catalent logo

After a 54% rise year-to-date, at the current levels, Catalent stock (NYSE: CTLT), a global solutions provider for drugs, biologics, gene therapies, and consumer healthcare products, has little room for growth, in our view. CTLT stock rose from $45 in early January to $70 now. The YTD 54% return for CTLT marks a significant outperformance with the broader S&P500 index, up 4%. The recent rise for Catalent can be attributed to reports of Danaher looking to acquire the company. [1]

Looking at the longer term, CTLT stock is up 24% from levels seen in late 2019, aligning with the gains in the broader S&P500 index. This 24% rise for CTLT stock since late 2019 was driven by: 1. Catalent’s Revenue, which grew 92% to $4.8 billion over the last twelve months, compared to $2.5 billion in 2019, partly offset by 2. the company’s P/S ratio, which plunged 30% to 2.6x trailing revenues, from 3.8x in 2019, and 3. an 8% rise in its total shares outstanding to 183 million currently. This means the company’s revenue per share rose 78% to $26.38 now, compared to $14.84 in 2019. Our dashboard – Why Catalent (CTLT) Stock Moved – provides more details on the factors behind this move.

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Catalent’s revenue growth over the recent years was primarily driven by robust demand for its Biologics offerings, including drug products and drug substance offerings related to Covid-19. The acquisitions of Skeletal in November 2020 and Delphi and Acorda in February 2021 have buoyed revenue growth over recent years. However, if we look at the latest quarter, the sales have declined 4% organically due to a significant decline in demand for Covid-19 related programs, a trend expected to continue in the near term. That said, the company should continue to see growth in its gene therapies. The company has reiterated its sales guidance to be between $4.6 and $4.9 billion, compared to $4.8 billion in 2018.

Not only did the company post 2x sales growth between 2019 and 2022, but its operating margin also expanded over 2x to 13.2%, compared to 6.4% over this period. Our Catalent Operating Margin Comparison dashboard has more details. The operating margin declined slightly to 12% in the previous quarter due to higher costs.

Looking at valuation, CTLT stock looks fairly valued after its recent rise. At its current level of $70, Catalent is trading at 2.6x trailing revenues compared to its last five-year average of 4.3x. The significant rise in stock price during 2020 and 2021 can be attributed to its aid in vaccine production. But now that Covid-19 is behind us, a decline in P/S multiple is justified. Also, going by the company’s guidance of $4.75 billion in sales in 2023 (at the mid-point of its provided range), the revenue per share metric will remain flat at about $26.

While CTLT stock has only a little room for growth, in our view, it is helpful to see how Catalent’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for IDEXX Laboratories vs. Entegris.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Mar 2023
MTD [1]
YTD [1]
Total [2]
 CTLT Return 2% 55% 159%
 S&P 500 Return 1% 4% 78%
 Trefis Multi-Strategy Portfolio 2% 9% 243%

[1] Month-to-date and year-to-date as of 3/9/2023
[2] Cumulative total returns since the end of 2016

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  1. Danaher Takes Interest in Life Sciences Firm Catalent, Liana Baker, Michelle F Davis and Ed Hammond, Bloomberg, Feb 2, 2023 []