2023-07-29 07:53:36 ET
Summary
- AptarGroup's revenue fell short of analysts' expectations, but profits exceeded them, leading to a 3.9% increase in share price.
- Despite positive financial performance, shares have trailed the broader market in recent months.
- Results were uneven but generally positive, but shares of the business are a bit lofty at this time.
July 28th proved to be a rather bullish day for shareholders of drug delivery and packaging company AptarGroup (ATR). Shares of the business closed up 3.9% after management reported, the day earlier, revenue that fell short of analysts' expectations but profits that exceeded them. Even though the overall picture for the company continues to look encouraging, with revenue, profits, and cash flows, all rising nicely year over year, this does not mean that the enterprise makes for an appealing prospect right now. Yes, the market rewarded shareholders in response to this news. But over the past several months, shares have continued to trail the broader market. Given how pricey the stock is, I would argue that there are better opportunities that can be had today. And because of this, I have no problem keeping the company rated a 'hold' for now.
Not enough
Back in an article that I published in the middle of January of this year, I recognized AptarGroup as a solid enterprise that had a bright future ahead for it. The financial track record of the company had been positive in the years leading up to that point and I saw no reason to suspect that the trend would change in a negative way for the foreseeable future. Normally, this would be a recipe for a bullish outlook. But as a value investor, it matters a great deal how much I pay for the companies that I invest in. Given how pricey the stock was, I felt as though a 'hold' rating was appropriate at that time. That kind of rating denotes my belief that shares should generate upside or downside that's more or less in alignment with the broader market.
Fast forward to today, and I understand that many investors in the company are likely feeling pretty good. Shares popped up 3.9% after reporting mixed but generally positive results for the second quarter of the company's 2023 fiscal year. But even with that nice increase, shares are up only 9.5% compared to when I last wrote about it. By comparison, the S&P 500 has gone up 14.6%. This does not mean that the company has suffered in any way from a financial perspective. In fact, I am quite pleased with the business when it comes to that angle.
To see what I mean, we need only look at the most recent data provided. During the second quarter of the firm's 2023 fiscal year, revenue came in at $895.9 million. That represents an increase of 6.1% over the $844.5 million management reported the same quarter one year earlier. The reported revenue fell short of analysts' expectations by $2.9 million. Actual organic growth for the company was a bit lower at about 4%, with acquisitions helping the company to the tune of 1% and foreign currency fluctuations helping by another 1%. But this does not fully capture all that transpired from a sales perspective. There was a part of the company that performed exceptionally well. And that is the Aptar Pharma segment. Aided to the tune of 2% by foreign currency fluctuations, revenue here spiked 15%.
For those who don't remember, this is the part of the company that sells dispensing systems, drug delivery systems, sealing solutions and services to prescription drug companies, and more. This increase in sales from $340.2 million to $390.7 million which driven largely by higher volumes in its prescription drug and consumer healthcare divisions. Core sales of its products associated with prescription drugs shot up 23% thanks to robust demand for emergency medicine aimed at combating opioid overdoses throughout North America. There were other factors here as well, such as demand for our products to treat asthma and allergic rhinitis. Meanwhile, core sales growth for the company's consumer health care products came in strong at 19% thanks to higher demand for eye care, nasal decongestant, and nasal saline rinse solutions. By comparison, the Aptar Beauty segment grew more modestly from $317.7 million to $329.6 million. This, combined with a roughly 6% decline in revenue associated with the Aptar Closures segment, pulled sales growth down year over year.
On the bottom line, the picture was even better. Earnings per share of $1.24 far exceeded the $0.95 per share the company reported the same time last year. Earnings were also $0.09 per share higher than what analysts thought they would be. This took net profits up from $63.6 million to $83.1 million. Other profitability metrics largely followed suit. The one exception was operating cash flow. According to management, it fell from $84.6 million to $83.9 million. But if we adjust for changes in working capital, we would see that it rose from $134.9 million to $152.9 million. Meanwhile, EBITDA for the business jumped from $159.9 million to $181.2 million. In the chart above, you can see that the results experienced during the second quarter of the year are part of a larger trend. For the first half of 2023 as a whole, revenue, profits, and cash flows, all came in stronger than what they did the year before.
We unfortunately don't know what to expect when it comes to the rest of the fiscal year. But at the rate things are going, it looks as though net income will come in somewhere around $261.7 million for the year. Adjusted operating cash flow looks set to total around $537.9 million, while EBITDA is likely to be around $653.2 million. Using these figures, it becomes pretty easy to value the company. In the chart below, you can see how the stock is priced using the estimates for 2023. The chart also shows how shares are valued using data from both 2021 and 2022.
Clearly, the stock looks pricey from a price to earnings perspective no matter which year we use. But when you use the cash flow metrics of the business, shares look reasonably priced. They definitely aren't cheap, but they aren't expensive either. Relative to similar firms, however, this is not the case. As you can see in the table below, I stacked the company up against five similar firms. For the sake of being conservative, I used the 2022 figures reported by AptarGroup as opposed to the forecasted figures for 2023. Using this approach, I found that it was the most expensive of the group using the price to earnings approach and the EV to EBITDA approach. But even if we were to use the 2023 estimates, its ranking in this regard would remain unchanged. Meanwhile, when it comes to the price to operating cash flow approach, three of the five companies were cheaper than it.
Company | Price / Earnings | Price / Operating Cash Flow | EV / EBITDA |
AptarGroup | 34.0 | 15.6 | 15.0 |
Berry Global Group (BERY) | 11.4 | 4.7 | 8.3 |
Silgan Holdings (SLGN) | 15.7 | 17.0 | 10.4 |
Crown Holdings (CCK) | 23.8 | 12.5 | 11.5 |
Greif (GEF) | 9.9 | 5.9 | 7.2 |
Ardagh Metal Packaging SA (AMBP) | 5.9 | 15.9 | 9.2 |
Takeaway
From what I can tell, AptarGroup is doing quite well for itself. Yes, it is true that management missed expectations when it came to revenue. However, profits and cash flows are doing quite well and the overall growth rate of revenue was still impressive. Shares aren't exactly expensive, though they are far from being cheap, both on an absolute basis and relative to similar companies. Given all of these factors combined, I feel comfortable keeping the company rated a 'hold' for now
For further details see:
AptarGroup: There Are Better Prospects Out There