Byron Capital’s Douglas Loe raises target on Patheon

Loe says he is encouraged by Patheon’s EBITDA and margin improvement, which he believes is sustainableYesterday Patheon (TSX:PTI) announced its Q3, 2012 numbers. The company earned $15.5-million on revenue of (US) $203.7-million, which was a bump from the $172.7-million topline the company posted in the same period last year.

Patheon CEO James Mullen said “We continue to be encouraged by the progress we make in transforming the company. Our top-line growth in the quarter was strong. Our transformation activities continue on track, and we are seeing the results of those efforts in our margins. As a result of the strong growth in the quarter, we are increasing our revenue guidance for the year to be in excess of $735-million.”

Byron Capital analyst Douglas Loe says Patheon exceeded his expectations for the quarter, even considering that the second half of the company’s fiscal years are typically strong. He says revenue was driven by growth in its commercial manufacturing operations, which contributed $168.3-million, well above his forecast of $152.6-million. In a research update to clients Thursday, Loe maintained his BUY recommendation on Patheon, but raised his target to $4.25, from his previous target of $3.

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Durham, North Carolina based Patheon was founded in 1974 in Burlington, Ontario. The company, which is contract manufacturer of prescription and over-the-counter drugs, operates three facilities in the US, three in Canada and four in Europe, where it delivers solid, semi-solid, liquid, and sterile dosage forms to clients such as Merck and Janssen-Cilag, an affiliate of Johnson & Johnson.

Loe says he is encouraged by Patheon’s EBITDA and margin improvement, which he believes is sustainable. Although management, he says, provided few specifics on the conference call following the quarterly results, he is encouraged by evidence that capital intensive transformation activities are now translating into operational improvement. The Byron analyst says the company, during a recent consultant-driven operational review, identified and begun to rectify bottlenecks in its operations across several facilities.

At press time, shares of Patheon were even at $3.11.

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