A biotechnology firm that can’t catch a break, Catalent (NYSE:CTLT) added to its growing list of problems with a delay of its fiscal third-quarter earnings report. Originally, management scheduled the financial disclosure for today. As well, Catalent must cut its annual financial outlook. Naturally, the loss of confidence amid a growing list of problems sent investors rushing for the exits. CTLT sank about 25% in the afternoon hours.
According to a Bloomberg report, Catalent “…expects to reduce its guidance for net revenue and adjusted earnings before interest, taxes, depreciation and amortization by at least $400 million each,” citing a corporate statement Monday. As well, management announced the Q3 disclosure push back to next Monday. At one point, shares traded hands at a little over $34, representing their lowest price since March 2020.
Unfortunately, the guidance reduction and earnings report delay weren’t the only headwinds for CTLT stock. On April 14, shares dropped sharply when management stated that the company’s three plants’ high costs and production issues would impact financial results. Days later, Danaher (NYSE:DHR) — which previously expressed takeover interest of Catalent at a significant premium — backed out of its proposal.
CTLT Stock Suffers a Massive Credibility Crisis
With Monday’s severe loss, CTLT stock stares at a performance of almost 22% below parity against its January opener. Unfortunately, circumstances might worsen for CTLT due to the massive loss of credibility.
According to the industry journal Fierce Pharma, in April, “… Catalent said manufacturing hurdles at three major production sites—including two of the contract manufacturer’s largest—were expected to put a squeeze on third-quarter earnings and weigh on the company’s outlook for the entire fiscal year, which runs through the first half of 2023.”
In addition to the above “operational challenges,” management disclosed that it has “also since identified significant issues with its forecasts over the past year,” thus sparking the aforementioned $400 million revenue and EBITDA guidance reductions.
Stephens analysts, led by Jacob Johnson, stated in a letter to clients that the Monday announcement represents the “latest (and perhaps largest) shoe to drop” at Catalent. “This raises a variety of questions including the impact to potential strategic interest.”
Why It Matters
At the close of May 5, Wall Street analysts pegged CTLT stock as a consensus moderate buy. Overall, their average price target stood at $61.20, implying about 71% upside potential. However, yesterday, Bank of America’s Derik De Bruin downgraded CTLT to “underperform” from “neutral.” The expert also forecasts a $28 price target, implying more than 21% downside risk.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
