Reasons to Retain West Pharmaceutical (WST) in Your Portfolio
West Pharmaceutical Services, Inc. WST is well-poised for growth, backed by the robust Proprietary Products segment and sustained strength in research and development (R&D). However, foreign exchange volatility remains a woe.
Shares of this Zacks Rank #3 (Hold) company have lost 45.5% compared with the industry's decline of 21% so far this year. The S&P 500 Index has fallen 25.4% in the same period.
West Pharmaceutical — with a market capitalization of $18.33 billion — is a leading global manufacturer in the design and production of technologically advanced, high-quality, integrated containment and delivery systems for injectable drugs and healthcare products. Its earnings are anticipated to improve 27.2% over the next five years. The company has a trailing four-quarter earnings surprise of 9.43%, on average.
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Key Catalysts
The proprietary products business continues to exhibit sustained strength and is an important contributor to WST's top line. This segment's customers primarily comprise several of the major biologic, generic and pharmaceutical drug companies globally that incorporate components and other offerings into their injectable products for distribution to patients.
Sales improved 13.1% organically in the second quarter of 2022. High-value products (components and devices) accounted for more than 70% of segment sales and delivered double-digit organic sales growth. Consumer demand for NovaPure, Envision and Daikyo Crystal Zenith components and self-injection devices led to the upside. Solid double-digit organic sales growth in the Biologics and Generics market units and mid-single-digit organic sales growth in the Pharma market unit are other quarterly highlights. The expansion of the adjusted operating margin also augurs well for the company.
West Pharmaceutical maintains its research-scale production facilities and laboratories for creating new products and provides contract engineering design and development services to help customers with new product developments.
The company continues to pursue innovative strategic platforms in prefillable syringes, injectable containers, advanced injections, and safety and administration systems. In the second quarter of 2022, the company's R&D expenses increased 4.3% from the prior-year quarter. West Pharmaceutical remains committed to seeking new innovative opportunities for the acquisition, licensing, partnering or development of products, services and technologies. WST is focused on its objective to connect dots throughout science and technology to fulfill ideas for potential value creation.
Factors Hurting the Stock
The growing exposure to international markets makes the company susceptible to adverse foreign exchange volatility. Unfavorable fluctuations in currency exchange rates can affect West Pharmaceutical's international sales. On the second-quarter 2022 earnings call, the company projected forex headwind on revenues of $190 million, up from the previous expectation of $115 million.
Moreover, the continued fall in the Contract-Manufactured Products segment is concerning. Lower demand for COVID-related products is worrying from the business perspective. Contraction in gross margin does not bode well. The lowering of West Pharmaceutical’s full-year financial outlook also raises apprehensions.
Estimates Trend
West Pharmaceutical has been witnessing a downward estimate revision trend for 2022. In the past 60 days, the Zacks Consensus Estimate for its earnings has declined 0.4% to $9.09 per share.
The Zacks Consensus Estimate for 2022 revenues stands at $2.97 billion, suggesting growth of 4.8% from the year-ago reported number.
West Pharmaceutical Services, Inc. Price
West Pharmaceutical Services, Inc. price | West Pharmaceutical Services, Inc. Quote
Stocks to Consider
Some better-ranked stocks from the broader medical space are AMN Healthcare Services, Inc. AMN, ShockWave Medical, Inc. SWAV and McKesson Corporation MCK.
AMN Healthcare, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 3.2%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 15.7%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcarehas lost 8.1% compared with the industry’s 35.6% fall so far this year.
ShockWave Medical, sporting a Zacks Rank #1 at present, has an estimated growth rate of 33.4% for 2023. SWAV’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.
ShockWave Medical has gained 50.8% against the industry’s 37% fall over the past year.
McKesson, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 10.1%. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average beat being 13%.
McKesson has gained 42.6% against the industry’s 21% fall so far this year.
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