Pharma, SmartTrack, Injectables And Beauty Will Open New Opportunities

Key Takeaways

• AptarGroup's Pharma and Beauty segments are poised for revenue growth due to strong demand, especially in sustainable products and drug delivery systems.
  
• Strategic expansions and share repurchases are expected to boost sales, earnings, and EPS growth, indicating confidence in future market opportunities.
  
• Beauty and Closures segments face revenue challenges, while market exposure and currency fluctuations could further impact growth and financial stability.

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 is capitalizing on strong demand in its Pharma segment, especially with proprietary drug delivery systems for emergency medicines and treatments for chronic conditions. This is expected to drive future revenue growth as these markets expand.
  
• The SmartTrack services platform, under clinical validation, aims to speed up generic inhaled drug approvals and develop low global warming potential inhaler formulations, potentially reducing costs and boosting net margins through innovation and improved efficiencies.
  
• AptarGroup is witnessing increased order activities in its Beauty segment, particularly in China and with sustainable products innovations, suggesting future revenue growth as these markets recover and evolve toward sustainability.
  
• Expanding production capabilities and capacity, especially in the Injectables division to meet demand for auto-injectors and GLP-1 biologics, is likely to enhance sales and improve earnings by capitalizing on growing market opportunities.
  
• The company's strategic share repurchase program, with $383 million remaining under authorization, is expected to support earnings per share (EPS) growth as it reduces total shares outstanding, reflecting confidence in future business trajectory.

AptarGroup Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AptarGroup's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.4% today to 10.5% in 3 years time.
• Analysts expect earnings to reach $448.0 million (and earnings per share of $6.64) by about May 2028, up from $370.2 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 30.2x on those 2028 earnings, up from 26.9x today. This future PE is greater than the current PE for the US Packaging industry at 20.2x.
• Analysts expect the number of shares outstanding to decline by 0.34% 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

• The Beauty segment faced challenges in sectors like prestige fragrances and facial skincare, particularly in Europe, which could continue to hinder revenue growth if not addressed effectively.
  
• The Closures segment experienced a decrease in core sales due to significantly lower tooling sales and discontinued activities, potentially impacting overall revenue and efficiency.
  
• Outsized exposure to certain markets with ongoing inventory management issues, particularly in Consumer Healthcare with nasal decongestants and cough medicines, may negatively influence revenue and growth prospects.
  
• Currency fluctuations presented a 3% headwind to reported sales, and while current effects have stabilized, any renewed volatility could impact future earnings.
  
• The temporary surtax in France resulted in a higher effective tax rate of 25.8% compared to 20.5% the previous year, which increased tax expenses and could restrict net income if similar tax impacts persist.

Valuation

• The analysts have a consensus price target of $173.667 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 $4.3 billion, earnings will come to $448.0 million, and it would be trading on a PE ratio of 30.2x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $150.92, the analyst price target of $173.67 is 13.1% 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.