Injectables Expansion And Probiotics Demand Will Drive Future Success

Key Takeaways

• AptarGroup's Pharma segment growth driven by drug delivery systems and emergency medicines is expected to significantly boost revenue and earnings.
  
• Strategic capacity expansions and innovation across segments enhance revenue potential and improve profit margins through operational efficiencies.
  
• A decline in prestige beauty products, currency fluctuations, and tax changes in France may pose challenges to AptarGroup's profitability and revenue growth.

Catalysts

Designs and manufactures a range of drug delivery, consumer product dispensing, and active material science solutions and services for the pharmaceutical, beauty, personal care, home care, and food and beverage markets.

• AptarGroup's Pharma segment anticipates continued strong demand from its proprietary drug delivery systems and emergency medicines, expecting these to be significant drivers of future sales growth, positively impacting revenue.
  
• Recent capacity expansions in the Injectables division and the focus on higher-value offerings are poised to support future growth, suggesting potential improvements in revenue and profit margins.
  
• The Active Material Science business is positioned for growth in 2025 with increased demand for solutions in probiotics and diabetes diagnostics, which could enhance both revenue and net margins.
  
• Beauty segment improvements, such as plant count reduction and growing project pipeline, are expected to enhance cost structures and operational efficiencies over time, likely benefiting net margins.
  
• Aptar's focus on innovation, particularly in Pharma with its new drug delivery systems and collaborations for inhaler platforms, is expected to fuel top-line growth, thereby supporting revenue and potentially increasing earnings.

AptarGroup Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AptarGroup's revenue will grow by 5.0% annually over the next 3 years.
• Analysts are assuming AptarGroup's profit margins will remain the same at 10.5% over the next 3 years.
• Analysts expect earnings to reach $437.7 million (and earnings per share of $6.5) by about March 2028, up from $374.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.5x on those 2028 earnings, up from 27.1x today. This future PE is greater than the current PE for the US Packaging industry at 22.9x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

AptarGroup Future Earnings Per Share Growth

Risks

• Aptar's Beauty segment faced a decline in high-value prestige products, particularly in the EMEA region, resulting in a 230 basis point decline in adjusted EBITDA margin, which could impact overall profitability.
  
• Currency fluctuations, particularly with the U.S. dollar showing renewed strength compared to other currencies like the euro and Brazilian real, represent a significant headwind on earnings per share for the coming year.
  
• The announcement of a potential increase in the French corporate tax rate, which could affect the effective tax rate across 2025, is anticipated to be a year-long headwind on net earnings.
  
• The first quarter of 2025 is expected to face softer demand in certain markets such as dispensing technologies for prestige fragrance and skin care, which may temper revenue growth.
  
• The ramp-up of new capacity in the injectables business is expected to be more gradual, which may delay anticipated revenue growth from new, high-demand pharmaceutical products.

Valuation

• The analysts have a consensus price target of $177.0 for AptarGroup based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $205.0, and the most bearish reporting a price target of just $160.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.2 billion, earnings will come to $437.7 million, and it would be trading on a PE ratio of 32.5x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $152.78, the analyst price target of $177.0 is 13.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.