Viatris Inc (VTRS, Financial), a pharmaceutical giant formed through the merger of Upjohn and Mylan, experienced a -4.1% change in its stock price recently. Despite this, the company showed a 8.32% gain over the last three months. With an Earnings Per Share (EPS) (EPS) of 1.53, it raises the question: Is Viatris (VTRS) fairly valued? In this article, we will conduct a thorough valuation analysis to answer this question. Read on for an in-depth exploration of Viatris's intrinsic value.
Introduction to Viatris Inc (VTRS, Financial)
Viatris was formed in November 2020 through the combination of Upjohn, a wholly owned subsidiary of Pfizer that specialized in off-patent drugs, and Mylan, a global pharmaceutical manufacturer that focused on generic and specialty drugs. This merger propelled Viatris into one of the largest generic drug manufacturers in the world, servicing over 165 countries. Generics (commoditized and complex) and biosimilars make up roughly 40% of Viatris's total sales. The remaining 60% of sales is derived from its portfolio of legacy products which includes Lipitor, Norvasc, Lyrica, and Viagra. While it covers more than 10 major therapeutic areas, Viatris has identified dermatology, ophthalmology, and gastroenterology as its three key areas of focus for future innovations.
Understanding the GF Value
The GF Value is a unique measure that offers an estimate of a stock's intrinsic value. This value is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to GuruFocus Value calculation, Viatris (VTRS, Financial) appears to be fairly valued. At its current price of $10.19 per share and a market cap of $12.20 billion, the stock aligns closely with the GF Value Line. This suggests that the long-term return of Viatris's stock is likely to be close to the rate of its business growth.
Financial Strength Analysis
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it's crucial to review the financial strength of a company before purchasing its stock. The cash-to-debt ratio and interest coverage are great starting points for understanding a company's financial strength. Viatris has a cash-to-debt ratio of 0.04, which is lower than 92.12% of 1053 companies in the Drug Manufacturers industry. This indicates that Viatris's financial strength is relatively poor.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, typically poses less risk. Viatris has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $15.60 billion and Earnings Per Share (EPS) of $1.53. Its operating margin is 7.38%, which ranks better than 54.74% of 1034 companies in the Drug Manufacturers industry.
Growth is a crucial factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. However, Viatris's 3-year average annual revenue growth is -15.7%, ranking lower than 87.72% of 912 companies in the Drug Manufacturers industry. The 3-year average EBITDA growth rate is 0.5%, which is worse than 66.82% of 883 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can determine 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For Viatris, the ROIC is 1.88, and its WACC is 5.22.
Conclusion
In conclusion, Viatris's stock appears to be fairly valued. The company's financial condition is poor, and its profitability is fair. Its growth ranks lower than 66.82% of 883 companies in the Drug Manufacturers industry. To learn more about Viatris stock, check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
