With a daily gain of 6.56% and a three-month gain of 22.89%, Viatris Inc. (VTRS, Financial) has been catching the attention of investors. The company's Earnings Per Share (EPS) stands at 1.57. However, the critical question is: Is the stock modestly overvalued? This article presents a comprehensive valuation analysis of Viatris to answer this question.
Introduction to Viatris Inc.
Viatris was established in November 2020 through the merger of Upjohn, a Pfizer subsidiary specializing in off-patent drugs, and Mylan, a global pharmaceutical manufacturer focusing on generic and specialty drugs. The merger positioned Viatris as one of the world's largest generic drug manufacturers, servicing over 165 countries. Generics and biosimilars make up roughly 40% of Viatris' total sales, with the remaining 60% derived from its legacy products portfolio, which includes Lipitor, Norvasc, Lyrica, and Viagra. The company's key areas of future innovation are dermatology, ophthalmology, and gastroenterology.
Comparing the stock price with the GF Value, an estimate of fair value, offers an insight into the company's value. At its current price of $11.29 per share, Viatris has a market cap of $13.50 billion, making the stock modestly overvalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to the GuruFocus Value calculation, Viatris (VTRS, Financial) stock is estimated to be modestly overvalued. As a result, the long-term return of its stock is likely to be lower than its business growth.
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Assessing Viatris' Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss. A look at the cash-to-debt ratio and interest coverage can provide a clear picture of a company's financial strength. Viatris has a cash-to-debt ratio of 0.04, worse than 92.89% of companies in the Drug Manufacturers industry. The overall financial strength of Viatris is 4 out of 10, indicating that its financial strength is poor.
Viatris' Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Viatris has been profitable 8 out of the past 10 years. Over the past twelve months, the company had a revenue of $15.80 billion and Earnings Per Share (EPS) of $1.57. Its operating margin is 8.5%, ranking better than 60.08% of companies in the Drug Manufacturers industry. Overall, the profitability of Viatris is ranked 6 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Viatris is -15.7%, ranking worse than 87.66% of companies in the Drug Manufacturers industry. The 3-year average EBITDA growth is 0.5%, ranking worse than 66.97% of companies in the Drug Manufacturers industry.
Comparing ROIC and WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also provide insight into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Viatris's ROIC was 2.12, while its WACC came in at 5.14.
Conclusion
Overall, Viatris (VTRS, Financial) stock is estimated to be modestly overvalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 66.97% of companies in the Drug Manufacturers industry. To learn more about Viatris stock, you can check out its 30-Year Financials here.
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