Despite being a market leader in insulin pen needles and syringes, Embecta Corp (NASDAQ:EMBC) may face challenges ahead, since the markets are already mature and the company has not diversified, according to BofA Securities.
The Embecta Analyst: Travis Steed initiated coverage of Embecta with an Underperform rating and a price target of $25.
The Embecta Thesis: While the company has high margins and generates cash, there is a lack of near-term catalysts for any meaningful revenue growth, especially with “a balance sheet 3x levered and strong entrenched competitors in adjacent opportunities,” Steed said in the initiation note.
Also Read: This Stock Has Fallen 35% YTD And Is Now 'The Definition Of Quality On Sale'
“Embecta is increasing R&D from roughly 5-6% of sales to the 7% range in [an] effort to accelerate top line growth but the most visible pipeline product (patch pump) is likely multiple years away, and even after launching, will likely to take time to add to growth,” the analyst wrote.
“There is value in EMBC’s cash flow but using our DCF we think the market is already appropriately valuing this cash flow,” he added.
EMBC Price Action: Shares of Embecta had declined by 4.68% to $26.94 at the time of publication Tuesday, according to Benzinga Pro.
