Bernzott Capital Advisors recently released its Q1 2020 Investor Letter, a copy of which you can download below. The fund posted a return of -32.76% (net) for the quarter, outperforming its benchmark, the Russell 2000 Value Index which returned -35.66% in the same quarter. You should check out Bernzott Capital Advisors top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.
In the said letter, Bernzott Capital Advisors highlighted a few stocks and Catalent Inc. (NYSE:CTLT) is one of them. Catalent is a global provider of delivery technologies and development solutions for biologics, drugs, and consumer health products. Year-to-date, CTLT stock gained 27.3% and on May 12th it had a closing price of $70.90. Its market cap is of $11.15 billion. Here is what Bernzott Capital Advisors said:
“Catalent (CTLT): CTLT, the leading global provider of advanced dosage delivery technologies and drug development solutions, reported solid fiscal 2Q20 results that beat consensus estimates. The company also raised 2020 guidance. 2Q20 net revenue +15.8% (+16.6% constant currency) vs last year and ahead of consensus estimates. Organic revenue +7% (high-end of guidance range). 2Q20 Adjusted EBITDA $171.0 million, +17.1% vs. last year (+17.8% constant currency), 5% organic, also ahead of consensus estimates. Adjusted EBITDA margin 23.7%, +30 bps vs. last year.2020 guidance was updated and now shows revenue growth of 14-17% (prior 10-14%) and Adj. EBITDA growth of 19-23% vs. last year (prior 17-22%). CTLT’s leverage was ~3.7x 2020E EBITDA at end of the quarter. Management believes through FCF generation and growing Adjusted EBITDA, the company can naturally delever 0.50x to 0.75x turns a year in the natural course of business. Following an upsized $900 million notes offering in February, the earliest debt maturity is now January 2026. With the new MaSTherCell acquisition, CTLT estimates that Biologics will account for 50% of 2024E revenue, up from 10% of revenue when the company went public in 2014 and ~27% of company revenue at the end of 2019. CTLT seems well positioned to operate in the current environment as medications are deemed “essential” and pharmaceutical manufacturing, therefore, cannot be disrupted. CTLT remains our second largest position after we trimmed the position in 1Q20.”
In Q4 2019, the number of bullish hedge fund positions on CTLT stock decreased by about 28% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with CTLT’s upside potential.
Disclosure: None. This article is originally published at Insider Monkey.
