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Up to date on March twenty sixth, 2024 by Bob Ciura
We offer a person evaluation of all Dividend Aristocrats annually. The following up in our annual Dividend Aristocrats In Focus sequence is West Pharmaceutical Companies (WST).
The shares have carried out extraordinarily properly in recent times. This efficiency was primarily based on sturdy earnings progress and an increasing valuation a number of.
West Pharmaceutical has additionally raised its dividend for 30 consecutive years, which implies it’s on the Dividend Aristocrats listing.
Now we have compiled a listing of all 68 Dividend Aristocrats and necessary monetary metrics reminiscent of price-to-earnings ratios and dividend yields. You possibly can obtain the complete listing by clicking on the hyperlink under:
Disclaimer: Positive Dividend isn’t affiliated with S&P World in any method. S&P World owns and maintains The Dividend Aristocrats Index. The knowledge on this article and downloadable spreadsheet relies on Positive Dividend’s personal overview, 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 primarily based. Not one of the info on this article or spreadsheet is official information from S&P World. Seek the advice of S&P World for official info.
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 parts. It is usually a contract producer for different MedTech firms. The inventory has a market cap of $28 billion.
Merchandise embrace computerized medicine supply techniques and medication 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 gadgets 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 enhance 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 neighborhood had anticipated, like throughout the earlier quarter, when it missed the consensus estimate as properly. Revenues had been positively impacted by forex price adjustments throughout the interval, not like throughout the earlier quarter when there was no such influence.
West Pharmaceutical Companies generated adjusted earnings-per-share of $1.83 throughout 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 spread of $7.50 to $7.75.
Development Prospects
Healthcare shares will profit from ongoing macro traits reminiscent of an growing old inhabitants and growing numbers of recent therapies that search to deal with every kind of illnesses. In consequence, West Pharmaceutical Companies will possible proceed to see ongoing progress from its core companies, manufacturing, and elements manufacturing.
West Pharmaceutical grew its earnings-per-share at a pretty tempo of 12% yearly between 2009 and 2019. West Pharmaceutical tasks a long-term natural gross sales progress price in a spread of 6% to eight%. Tailwinds for the trade, reminiscent of rising healthcare spending, will assist West Pharmaceutical in attaining sizeable income progress in coming years.
Income progress will likely be one supply for larger earnings, however a extra favorable product combine will positively influence West Pharmaceutical’s earnings progress as properly. The corporate seeks to extend its revenues within the Proprietary Merchandise phase, which has considerably larger 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 subsequent 5 years.
Aggressive Benefits & Recession Efficiency
West Pharmaceutical Companies isn’t among the many largest healthcare firms on this planet. Nevertheless, its important opponents are usually not firms reminiscent of Johnson & Johnson (JNJ), however quite different elements producers and contract producers.
West Pharmaceutical Companies has a spread of producing amenities in numerous nations 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 in the case of proprietary merchandise. In that regard, West Pharmaceutical Companies’ investments might repay in the long term, by means of an above-average progress price and a product portfolio that’s well-protected in opposition to potential new market entrants.
Healthcare is a recession-resilient trade, as demand for medicine and coverings doesn’t rely extremely on the power of the financial system. Through the Nice Recession, West Pharmaceutical Companies’ earnings-per-share declined by lower than 15% peak-to-trough.
That is a pretty efficiency, each on an absolute foundation in addition to relative to the large revenue declines that had been skilled by many different firms with extra susceptible companies.
WST’s efficiency throughout 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% enhance)
The corporate’s resilience throughout financial downturns makes West Pharmaceutical Companies a pretty selection for risk-averse buyers, not less than on a elementary foundation.
Valuation & Anticipated Returns
WST has generated wonderful returns for shareholders. Up 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 presently trades for ~50.8 instances 2024’s anticipated earnings-per-share of $7.63. That may 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 could be pretty valued at 25 instances 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 cut back annual returns by 13.2% per 12 months over the subsequent 5 years.
With a really low dividend yield of simply 0.2%, West Pharmaceutical Companies is predicted to generate damaging annual returns of -4% within the coming 5 years.
This reveals the potential hazard of shopping for shares with elevated valuation multiples.
Remaining Ideas
West Pharmaceutical Companies is a robust firm on a elementary 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 value is also the rationale why West Pharmaceutical Companies’ dividend yield could be very low. Even if the corporate is a Dividend Aristocrat, we price the inventory a promote at present costs.
If you’re fascinated with discovering high-quality dividend progress shares appropriate for long-term funding, the next Positive Dividend databases will likely be helpful:
The foremost 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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