Dividend Aristocrats In Focus: West Pharmaceutical Providers

Up to date on March twenty sixth, 2024 by Bob Ciura

We offer a person evaluation of all Dividend Aristocrats annually. The subsequent up in our annual Dividend Aristocrats In Focus collection is West Pharmaceutical Providers (WST).

The shares have carried out extraordinarily effectively lately. This efficiency was primarily based on robust 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 listing.

We now have compiled an inventory of all 68 Dividend Aristocrats and vital monetary metrics reminiscent of price-to-earnings ratios and dividend yields. You possibly can obtain the total listing by clicking on the hyperlink under:

Disclaimer: Certain Dividend isn’t affiliated with S&P World in any approach. S&P World owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet is predicated on Certain 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 traders 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 knowledge 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 Providers is a healthcare firm. It manufactures and sells medical packaging and medical parts. It’s also a contract producer for different MedTech firms. The inventory has a market cap of $28 billion.

Merchandise embody automated treatment supply techniques and drugs injection options, amongst others.

Gross sales are principally 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 Providers 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 Providers’ revenues have been barely decrease than what the analyst neighborhood had anticipated, like in the course of the earlier quarter, when it missed the consensus estimate as effectively. Revenues have been positively impacted by forex fee adjustments in the course of the interval, not like in the course of the earlier quarter when there was no such impression.

West Pharmaceutical Providers generated adjusted earnings-per-share of $1.83 in the course of the fourth quarter, which represents a rise of three% in comparison with the prior 12 months’s quarter.

West Pharmaceutical Providers 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 developments reminiscent of an getting older inhabitants and rising numbers of recent therapies that search to deal with all types of illnesses. In consequence, West Pharmaceutical Providers will doubtless proceed to see ongoing progress from its core companies, manufacturing, and elements manufacturing.

West Pharmaceutical grew its earnings-per-share at a beautiful 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, reminiscent of rising healthcare spending, will assist West Pharmaceutical in reaching sizeable income progress in coming years.

Income progress will likely be one supply for larger earnings, however a extra favorable product combine will positively impression West Pharmaceutical’s earnings progress as effectively. The corporate seeks to extend its revenues within the Proprietary Merchandise phase, which has considerably larger margins than the Contract-Manufactured Merchandise enterprise.

A just lately introduced buyback program may 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 Providers isn’t among the many largest healthcare firms on this planet. Nonetheless, its primary rivals aren’t firms reminiscent of Johnson & Johnson (JNJ), however reasonably different elements producers and contract producers.

West Pharmaceutical Providers has a variety of producing services in several 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 have been rewarded during the last couple of years alone, which is the results of its investments in R&D on the subject of proprietary merchandise. In that regard, West Pharmaceutical Providers’ investments may repay in the long term, by way of an above-average progress fee and a product portfolio that’s well-protected in opposition to potential new market entrants.

Healthcare is a recession-resilient business, as demand for treatment and coverings doesn’t rely extremely on the energy of the financial system. Throughout the Nice Recession, West Pharmaceutical Providers’ earnings-per-share declined by lower than 15% peak-to-trough.

That is a beautiful efficiency, each on an absolute foundation in addition to relative to the large revenue declines that have been skilled by many different firms with extra weak companies.

WST’s efficiency in the course of 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 Providers a beautiful selection for risk-averse traders, at the least on a elementary foundation.

Valuation & Anticipated Returns

WST has generated glorious returns for shareholders. Prior to now 5 years, WST inventory produced annualized returns above 30%. This was principally pushed by robust earnings progress and growth of the P/E a number of in that timeframe.

West Pharmaceutical Providers at the moment 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 following 5 years.

With a really low dividend yield of simply 0.2%, West Pharmaceutical Providers is predicted to generate adverse annual returns of -4% within the coming 5 years.

This reveals the potential hazard of shopping for shares with elevated valuation multiples.

Ultimate Ideas

West Pharmaceutical Providers is a powerful 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.

Nonetheless, the inventory’s valuation may 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 Providers’ dividend yield may be very low. Even though the corporate is a Dividend Aristocrat, we fee the inventory a promote at present costs.

In case you are concerned with discovering high-quality dividend progress shares appropriate for long-term funding, the next Certain Dividend databases will likely be helpful:

The foremost home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month: