Up to date on March twenty sixth, 2024 by Bob Ciura
We offer a person evaluation of all Dividend Aristocrats every year. The following up in our annual Dividend Aristocrats In Focus sequence is West Pharmaceutical Companies (WST).
The shares have carried out extraordinarily nicely in recent times. This efficiency was based mostly on sturdy earnings progress and an increasing valuation a number of.
West Pharmaceutical has additionally raised its dividend for 30 consecutive years, which suggests it’s on the Dividend Aristocrats checklist.
We’ve got compiled an inventory of all 68 Dividend Aristocrats and vital monetary metrics equivalent to price-to-earnings ratios and dividend yields. You may obtain the complete checklist by clicking on the hyperlink under:
Disclaimer: Positive Dividend isn’t affiliated with S&P World in any approach. S&P World owns and maintains The Dividend Aristocrats Index. The knowledge on this article and downloadable spreadsheet is predicated on Positive Dividend’s personal evaluation, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s based mostly. Not one of the data on this article or spreadsheet is official information from S&P World. Seek the advice of S&P World for official data.
This text will focus on West Pharmaceutical’s enterprise mannequin, progress potential, aggressive benefits, and whether or not we view the inventory as a purchase proper now.
Enterprise Overview
West Pharmaceutical Companies is a healthcare firm. It manufactures and sells medical packaging and medical elements. It’s also a contract producer for different MedTech corporations. The inventory has a market cap of $28 billion.
Merchandise embody automated treatment supply programs and drugs injection options, amongst others.
Gross sales are largely generated within the US and the MENA area. This isn’t an enormous shock, as healthcare expenditures on a per-capita foundation are among the many highest within the US and Europe. Excessive-Worth Product Elements make up greater than half of the corporate’s gross sales, whereas supply units contribute a a lot smaller portion of West Pharmaceutical’s income.
West Pharmaceutical Companies reported its fourth quarter earnings outcomes on February 15. The corporate reported that its revenues totaled $730 million, which represents a income improve of three% in comparison with the prior 12 months’s quarter.
Supply: Investor Presentation
West Pharmaceutical Companies’ revenues had been barely decrease than what the analyst group had anticipated, like through the earlier quarter, when it missed the consensus estimate as nicely. Revenues had been positively impacted by forex fee adjustments through the interval, in contrast to through the earlier quarter when there was no such influence.
West Pharmaceutical Companies generated adjusted earnings-per-share of $1.83 through the fourth quarter, which represents a rise of three% in comparison with the prior 12 months’s quarter.
West Pharmaceutical Companies is forecasting revenues of $3.00 billion to $3.03 billion for fiscal 2024. The corporate guides for earnings-per-share to fall into a variety of $7.50 to $7.75.
Progress Prospects
Healthcare shares will profit from ongoing macro traits equivalent to an getting old inhabitants and growing numbers of latest therapies that search to deal with all types of illnesses. In consequence, West Pharmaceutical Companies will doubtless proceed to see ongoing progress from its core companies, manufacturing, and elements manufacturing.
West Pharmaceutical grew its earnings-per-share at a sexy tempo of 12% yearly between 2009 and 2019. West Pharmaceutical initiatives a long-term natural gross sales progress fee in a variety of 6% to eight%. Tailwinds for the business, equivalent to rising healthcare spending, will assist West Pharmaceutical in attaining sizeable income progress in coming years.
Income progress will likely be one supply for greater earnings, however a extra favorable product combine will positively influence West Pharmaceutical’s earnings progress as nicely. The corporate seeks to extend its revenues within the Proprietary Merchandise section, which has considerably greater margins than the Contract-Manufactured Merchandise enterprise.
A lately introduced buyback program might additionally assist the corporate in rising its earnings-per-share. We forecast WST to generate 9% annual earnings-per-share progress over the following 5 years.
Aggressive Benefits & Recession Efficiency
West Pharmaceutical Companies isn’t among the many largest healthcare corporations on this planet. Nevertheless, its predominant rivals usually are not corporations equivalent to Johnson & Johnson (JNJ), however fairly different elements producers and contract producers.
West Pharmaceutical Companies has a variety of producing services in numerous international locations across the globe. This aggressive benefit permits the corporate to provide on to the markets the place its merchandise are wanted whereas saving on transportation prices.
It additionally holds a number of hundred patents that had been rewarded over the past couple of years alone, which is the results of its investments in R&D with regards to proprietary merchandise. In that regard, West Pharmaceutical Companies’ investments might repay in the long term, by means of an above-average progress fee and a product portfolio that’s well-protected towards potential new market entrants.
Healthcare is a recession-resilient business, as demand for treatment and coverings doesn’t rely extremely on the power of the financial system. In the course of the Nice Recession, West Pharmaceutical Companies’ earnings-per-share declined by lower than 15% peak-to-trough.
That is a sexy efficiency, each on an absolute foundation in addition to relative to the massive revenue declines that had been skilled by many different corporations with extra susceptible companies.
WST’s efficiency through the Nice Recession regarded like this:
- 2008 earnings-per-share: $1.19
- 2009 earnings-per-share: $1.06 (11% lower)
- 2010 earnings-per-share: $1.05 (0.9% lower)
- 2011 earnings-per-share: $1.17 (11% improve)
The corporate’s resilience throughout financial downturns makes West Pharmaceutical Companies a sexy selection for risk-averse buyers, at the very least on a basic foundation.
Valuation & Anticipated Returns
WST has generated wonderful returns for shareholders. Prior to now 5 years, WST inventory produced annualized returns above 30%. This was largely pushed by sturdy earnings progress and enlargement of the P/E a number of in that time-frame.
West Pharmaceutical Companies at the moment trades for ~50.8 occasions 2024’s anticipated earnings-per-share of $7.63. That could be a fairly excessive valuation, each in absolute phrases, in addition to relative to how the corporate was valued up to now, trying again a decade and extra.
We consider that shares can be pretty valued at 25 occasions EPS. In consequence, we view the inventory as considerably overvalued, even when factoring within the forecasted earnings-per-share progress.
A declining P/E a number of from 50.8 to 25 would scale back annual returns by 13.2% per 12 months over the following 5 years.
With a really low dividend yield of simply 0.2%, West Pharmaceutical Companies is predicted to generate destructive annual returns of -4% within the coming 5 years.
This exhibits the potential hazard of shopping for shares with elevated valuation multiples.
Remaining Ideas
West Pharmaceutical Companies is a robust firm on a basic foundation. The enterprise is recession-resistant, the corporate advantages from macro progress tailwinds, and the corporate’s longer-term income and earnings progress potential are compelling.
Nevertheless, the inventory’s valuation could be very excessive, and we consider that shares are considerably overvalued at present ranges. The very excessive share worth is also the explanation why West Pharmaceutical Companies’ dividend yield could be very low. Even though the corporate is a Dividend Aristocrat, we fee the inventory a promote at present costs.
If you’re fascinated about discovering high-quality dividend progress shares appropriate for long-term funding, the next Positive Dividend databases will likely be helpful:
The main home inventory market indices are one other stable useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month:
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