Aptar Earnings: Continuous Top-line Growth Highlights Solid Proprietary Pharma Dispense Offerings

Narrow-moat Aptar’s ATR third-quarter performance continued the high note we have seen throughout 2023. We are maintaining our $132 fair value estimate following a strong quarter that reaffirmed our opinion on the intangible asset and switching costs that Aptar’s pharma business enjoys. Adjusted EBITDA increased over 26% year over year, supported by cost savings efforts and operating leverage. Shares are currently undervalued, in our view.

Aptar Pharma recorded 8% core sales growth year over year, mainly driven by strong demand for proprietary over-the-counter drug delivery systems. During the company’s investor day in September, management raised Aptar Pharma’s long-term core annual sales growth target by 100 basis points to 7%-11%. Following a quarter of double-digit revenue growth from OTC dispensing solutions, we see an attractive opportunity for Aptar in this space where it could leverage design and development expertise to work with smaller drug companies on capturing incremental market demands, especially for nasal spray products. We also believe Aptar’s additional injectables production capacity in France and the United States, slated for 2024, is likely to lift the sales of premium products such as PremiumCoat, bringing an improved margin profile to Aptar Pharma.

Aptar Beauty’s 2% year-over-year core sales growth is supported by its prestige and mass fragrance solutions. While product sales in Europe remained robust, customers in the U.S. are taking longer than expected to stabilize their inventory levels, affecting North America’s overall volume. Core sales from Aptar Closures continued to decline for a fourth consecutive quarter. As Closures customers work through excessive inventories, we expect a stable level of margin within this segment, thanks to lower resin prices and Aptar’s cost-reduction efforts.