Catalent Earnings: Deal Reached With Elliott for Strategic Review; Positive Long-Term Outlook

Catalent CTLT reported fiscal-year 2023 results and entered into a cooperation agreement with activist investor, Elliott Investment Management. As part of this agreement, Catalent appointed four new members to its board of directors and will undertake a strategic review. Catalent has experienced operational issues and higher-than-expected costs at three of its manufacturing facilities in 2023. Additionally, a goodwill impairment of $210 million in its consumer health business, which was related to its 2021 acquisition of Bettera Wellness, negatively impacted the company’s results, leading to an operating loss of $137 million in 2023 compared with operating income of $730 million in 2022.

Further, lower COVID-19-related revenue was expected given less demand for COVID-19 vaccines and treatments compared with last year. However, we are pleased to see that non-COVID-19 biologics revenue increased by about 12% across the full year. We continue to have a positive, long-term outlook for Catalent and maintain our $65 fair value estimate, narrow moat, and High Uncertainty Rating. We think shares are trading at an attractive entry point for long-term investors with a high degree of risk tolerance. Investors reacted favorably to Catalent’s results and the deal with Elliott, sending the stock up over 5%.

We forecast 2024 revenue will reach over $4.4 billion, representing growth of nearly 4% year over year and steadily improving margins throughout our 10-year forecast period as the company improves its operations. Our long-term outlook remains strong as drug manufacturing becomes more complex with biologics and cell and gene therapies playing larger roles in the overall mix. Catalent has been heavily investing in these areas to keep up with increased demand. We appreciate that Catalent has a commercial supply agreement with Sarepta Therapeutics to manufacture its Duchenne Muscular Dystrophy gene therapy, which received accelerated U.S. Food and Drug Administration approval in June.