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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 is a concern.

Shares of this Zacks Rank #3 (Hold) company have gained 30.1% compared with the industry's 12.3% growth in the past six months. The S&P 500 Index has increased 9.3% in the same period.

West Pharmaceutical, with a market capitalization of $24.88 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 15.1% over the next five years. The company has a trailing four-quarter earnings surprise of 10.35%, on average.

Zacks Investment Research
Zacks Investment Research


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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 in their injectable products.

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Sales improved 2.6% organically in the fourth quarter of 2022. High-value products (components and devices) accounted for more than 70% of segment sales and delivered mid-single-digit organic sales growth. Consumer demand for Crystal Zenith, Envision and film-coated component categories led to an increase in HVP net sales, partially offset by a decline in NovaPure sales related to COVID-19 vaccines. Mid-single-digit organic net sales growth in the Biologics and Generics market units, and low-single-digit organic net 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. It also 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. The company's R&D expenses increased 16.1% from the prior-year quarter. 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 the company susceptible to adverse foreign exchange volatility. Unfavorable fluctuations in currency exchange rates can affect WST’s international sales. On its fourth-quarter 2022 earnings call, the company projected a forex headwind on revenues of $30 million for the full-year 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 margin does not bode well. The company expects a $303 million year-over-year decline in pandemic-related sales.

Estimates Trend

West Pharmaceutical has been witnessing an upward estimate revision trend in 2023. In the past 30 days, the Zacks Consensus Estimate for earnings has improved 2.4% to $7.38 per share.

Revenue estimates for the year are $2.95 billion, indicating a 2% increase from 2022.

West Pharmaceutical Services, Inc. Price

West Pharmaceutical Services, Inc. Price
West Pharmaceutical Services, Inc. Price

West Pharmaceutical Services, Inc. price | West Pharmaceutical Services, Inc. Quote

Stocks to Consider

Some better-ranked stocks in the broader medical space are Becton, Dickinson and Company BDX, Henry Schein HSIC and The Cooper Companies COO.

Becton, Dickinson and Company, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth of 7.8%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average beat being 6.47%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past six months, BDX’s shares have gained 3.1% compared with the industry’s 12.2% growth.

Henry Schein, carrying a Zacks Rank #2 at present, has an estimated long-term growth of 8.1%. Its earnings surpassed estimates in three of the trailing four quarters and met the same once, the average beat being 2.97%.

In the past six months, the company’s shares have gained 17.3% compared with the industry’s 12.2% growth.

The Cooper Companies, carrying a Zacks Rank #2 at present, has an estimated long-term growth of 11%. COO’s earnings missed estimates in each of the trailing four quarters, the average negative beat being 1.82%.

In the past six months, the company’s shares have gained 28% compared with the industry’s 12.2% growth.

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Becton, Dickinson and Company (BDX) : Free Stock Analysis Report

Henry Schein, Inc. (HSIC) : Free Stock Analysis Report

The Cooper Companies, Inc. (COO) : Free Stock Analysis Report

West Pharmaceutical Services, Inc. (WST) : Free Stock Analysis Report

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