Investing.com -- Barclays has upgraded Schott Pharma (ETR: 1SXP ) to "overweight" from "equal weight," underlining its strong exposure to high-value solutions (HVS), strong financial flexibility, and improved investor communication.

The brokerage sees Schott as uniquely positioned within the pharmaceutical packaging sector to deliver low- to mid-teens EPS growth beyond fiscal year 2025.

Central to Barclays’ thesis is Schott’s approximately 60% revenue exposure to HVS, the highest among sector peers.

HVS includes advanced drug delivery systems, which are growing rapidly due to rising drug complexity and biologics adoption.

Barclays believes this will support sustainable high-single-digit to low-double-digit revenue growth, translating into meaningful operating leverage and margin expansion.

At 21x FY2026 estimated EPS (September year-end), Schott’s valuation is considered attractive given its growth trajectory.

Reflecting increased confidence in the company’s outlook, Barclays has raised its target earnings multiple from 20x to 25x, setting a new price target of €32, up from €26.

This implies a premium to German peer Gerresheimer, justified by Schott’s superior exposure to high-growth areas and unlevered capital structure.

Indeed, Schott Pharma operates with essentially zero debt, funding all capital expenditures through operating cash flow.

This clean balance sheet provides latent capacity for value-accretive initiatives such as mergers and acquisitions or shareholder returns.

Barclays sees this as a strategic advantage, especially in a capital-intensive sector facing shifting demand patterns post-COVID.

The upgrade also reflects improvements in Schott’s investor transparency. Following its IPO in September 2023, investors initially struggled with limited quarterly disclosures and foreign exchange impacts on EBITDA.

However, Barclays notes a marked improvement in financial reporting, with management and investor relations now more attuned to public market standards. This enhanced transparency has made it easier for analysts to articulate a bullish case for the stock.

Barclays also sees potential for Schott Pharma to gain more autonomy from its parent, the privately held Schott Group.

With a new group chair appointed in January 2025, there’s hope that Schott Pharma will be empowered to chart a more independent growth path and fully capitalize on its public market potential.

Despite sector-wide headwinds, such as post-COVID demand normalization and past overinvestment, Barclays believes the industry is beginning to recover.

Vial demand, a major drag since 2023, is stabilizing, and companies like Schott are showing capital expenditure discipline.

The company recently cut FY2025 capex guidance by €20 million, reinforcing its focus on efficient capital allocation.

While risks remain, including shifts toward oral GLP-1 drugs, regulatory pressures, and geopolitical volatility, Barclays argues that Schott’s strengths outweigh the uncertainties.

Its leading position in HVS, strong financial footing, and improving market communication support the view that Schott is primed to outperform both peers and sector expectations.