On Thursday, BofA Securities revised its price target for Schott Pharma AG (ETR:1SXP:GR) shares, a pharmaceutical packaging company, to €35 from the previous €45, while continuing to recommend the stock as a Buy.
The adjustment follows the company's tempered expectations for sales growth and EBITDA margins for the fiscal year 2025, influenced by industry-wide factors affecting demand.
Schott Pharma has reported a high single-digit to low double-digit (HSD/LDD) sales growth forecast and anticipates a flat EBITDA margin for FY25, with these projections remaining constant in terms of foreign exchange (FX).
The company's outlook adjustment is primarily due to reduced orders for mRNA polymer syringes from a significant client and a more pronounced destocking of vials within its Drug Containment Solutions (DCS) segment.
The firm is also expecting additional foreign exchange headwinds in FY24 due to hedging activities, although its guidance remains unchanged on a constant FX basis, projecting a 9-11% increase. In response to the new developments, BofA Securities has lowered its earnings per share (EPS) estimates for Schott Pharma by 14% and 32% for FY24 and FY25, respectively.
Despite the near-term challenges and expected volatility in the stock, Schott Pharma's management has reaffirmed its mid-term targets, which include a greater than 10% compound annual growth rate (CAGR) in sales and an EBITDA margin in the low-30s percentage range, at constant FX. The company is considering measures to mitigate the impact of the current market conditions.
BofA Securities' valuation of Schott Pharma aligns with that of its peer Stevanato, based on a 12-month forward price-to-earnings (P/E) ratio of 38 times and a 22 times EBITDA multiple. The firm's analysis suggests that the issues facing Schott Pharma are temporary and that the company stands to benefit from the structural growth in the injectable drugs market over the longer term.
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