West Pharmaceutical (WST) Hits 52-Week High: More Room to Grow?
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 is a concern.
Shares of this Zacks Rank #2 (Buy) company have risen 62.6% year to date compared with the industry's 16.7% growth. The S&P 500 Index has increased 16.9% in the same period.
West Pharmaceutical, with a market capitalization of $26.53 billion, is a leading global manufacturer, engaged 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 6.3% over the next five years. The company delivered a trailing four-quarter average earnings surprise of 13.61%.
Its earnings surpassed estimates in three of the trailing four quarters and missed the mark in one, delivering an average surprise of 13.61%.
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WST’s shares have risen 24% in the past year on the back of strong performance in the last four quarters. A continued robust demand for generics and pharma products as well as contract-manufactured products is likely to drive its share price higher.
The company reached a new 52-week high in the past few trading session. This, along with a favorable Zacks Rank, makes West Pharmaceutical a good bet for investors.
Let’s delve deeper.
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 of several major biologic, generic and pharmaceutical drug companies globally that incorporate its components and other offerings in their injectable products.
Sales improved 2.3% organically in the first quarter of 2023. High-value products (components and devices) accounted for more than 70% of segmental sales and delivered mid-single-digit organic sales growth.
Increase in demand, especially from biologic customers, and strong performances in Generics and Pharma market units, buoy optimism. West Pharmaceutical also continues to expand its high-value product manufacturing capacity for supporting rising customer demand from recent launches and anticipated drug programs in the coming years.
Robust organic growth of Proprietary Products’ Generics and Pharma market units is another quarterly highlight.
The company maintains its research-scale production facilities and laboratories for creating new products. It also provides contract engineering design and development services to help customers with new product developments.
WST continues to pursue innovative strategic platforms in prefillable syringes, injectable containers, advanced injections, and safety and administration systems. In the first quarter, the company's R&D expenses increased 17.1% from the prior-year period’s level.
West Pharmaceutical remains committed to seeking innovative opportunities for the acquisition, licensing, partnering or development of products, services and technologies. The company is focused on its objective of connecting dots throughout science and technology for potential value creation.
Factors Hurting the Stock
The growing exposure to international markets makes WST susceptible to adverse foreign exchange volatility. Unfavorable fluctuations in currency exchange rates can affect WST’s international sales. On its first-quarter 2023 earnings call, the company projected forex headwind on revenues of $15 million for 2023.
Moreover, the constant fall in the Contract-Manufactured Products segment is concerning. Lower demand for COVID-related products is also worrying.
Contraction in gross and operating margins does not bode well. West Pharmaceutical’s pandemic-related sales are also likely to experience a downtrend in the rest of 2023, thereby hurting Proprietary Products’ revenue growth.
Estimates Trend
The company has been witnessing an upward estimate revision trend in 2023. In the past 30 days, the Zacks Consensus Estimate for earnings has improved 0.7% to $7.68 per share.
The same for revenues is pegged at $2.98 billion, indicating a 3.1% increase from the 2022 level.
West Pharmaceutical Services, Inc. Price
West Pharmaceutical Services, Inc. price | West Pharmaceutical Services, Inc. Quote
Other Stocks to Consider
Some other top-ranked stocks from the broader medical space are Hologic HOLX, Alcon ALC and Perrigo PRGO, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hologic has an estimated growth rate of 5% for fiscal 2024. The company’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 27.32%.
HOLX’s shares have risen 8.4% year to date compared with the industry’s 6.4% growth.
Alcon has an estimated long-term growth rate of 14.9%. Its earnings surpassed estimates in three of the trailing four quarters and met the same once, delivering an average surprise of 8.85%.
ALC’s shares have rallied 17.2% year to date compared with the industry’s 6.4% growth.
Perrigo’s earnings are expected to improve 24.6% in 2023. The strong momentum is likely to continue in 2024 as well. PRGO’s earnings surpassed estimates in two of the trailing four quarters and missed the same twice, delivering an average negative surprise of 0.79%.
The company’s shares have lost 1.9% year to date against the industry’s 4.8% growth.
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