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Bear Of The Day: Catalent (CTLT)

Catalent (CTLT) is a Zacks Rank #5 (Strong Sell) and recently missed earnings.  Despite the recent earnings miss, the lower stock price has made the valuation that much more attractive. This article will look at why this stock is a Zacks Rank #5 (Strong Sell) as it is the Bear of the Day.

Description

Catalent, Inc. develops and manufactures solutions for drugs, protein-based biologics, cell and gene therapies, and consumer health products. The Softgel and Oral Technologies segment provides formulation, development, and manufacturing services for soft capsules for use in a range of customer products, such as prescription drugs, over-the-counter medications, dietary supplements, and analytical development and testing services. The Oral and Specialty Delivery segment offers formulation, development, and manufacturing across a range of technologies along with integrated downstream clinical development and commercial supply solutions. The Clinical Supply Services segment offers manufacturing, packaging, storage, distribution, and inventory management for drugs and biologics, and cell and gene therapies in clinical trials. The company was incorporated in 2007 and is headquartered in Somerset, New Jersey.

Earnings History

When I look at a stock, the first thing I do is look to see if the company is beating the number.  This tells me right away where the market’s expectations have been for the company and how management has communicated to the market.  A stock that consistently beats has management communicating expectations to Wall Street that can be achieved.  That is what you want to see.

In the case of CTLT, I three beats of the  Zacks Consensus Estimate and one miss.  This alone does not make the stock a Zacks Rank #1 (Strong Buy) and it doesn’t make it a Zacks Rank #5 (Strong Sell) either.

The Zacks Rank does care about the earnings history, but it is much more heavily influenced by the movement of earnings estimates.

Earnings Estimates

The Zacks Rank tells us which stocks are seeing earnings estimates move higher or in this case lower.  For CTLT I see annual estimates moving lower.

The current fiscal year consensus number moved from $3.81  to $3.35 over the last 60 days.

The next year has moved from $4.53 to $3.86.

Negative movement in earnings estimates like that is why this stock is a Zacks Rank #5 (Strong Sell).

It should be noted that a majority of stocks in the Zacks universe are seeing negative earnings estimate revisions.  That means that the stocks that are seeing small but negative earnings estimate revisions are falling to a Zacks Rank #5 (Strong Sell).


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