Catalent upgraded at Deutsche Bank on potential upside to forecasts

Deutsche Bank raised its recommendation for contract manufacturer Catalent (NYSE:CTLT) to Buy from Hold and lifted its price target to $88 from $79 per share, citing a potential upside to the company's 2023/ 2024 estimates.

"The crux of our upgrade is that we have increased conviction and see potential upside to our 2023 / 2024 estimates," the analyst Justin Bowers wrote.

Bowers points to CTLT's strategic partnerships with COVID-19 vaccine maker Moderna (MRNA) and gene therapy developer Sarepta (SRPT) to argue that the company has "diminishing tail risk."

Citing CTLT's partnership for Duchenne muscular dystrophy, SRP-9001, with Sarepta (SRPT), Bowers argues that the latter, having accounted for $135M in CY22, could lead to a three-fold rise in its FY24 contribution.

Despite YTD outperformance, "we still see a 2.5-to-1 positive risk / reward skew for the stock under a FDA approval for SRP-9001 and potentially higher in an M&A scenario," he added.

The analyst also argues that the company's recent contract extension with Moderna (MRNA) for its pandemic-era collaboration further de-risks Catalent's (CTLT) forward revenue and issues a $100 per share takeout value for the stock, noting its M&A prospects.

In early February, Catalent (CTLT) shares surged amid news reports that the life sciences company Danaher (DHR) was looking for a deal to buy it at "a significant premium."