Viatris Inc (VTRS, Financial) has seen a 3.5% daily gain, a 3-month gain of 4.33%, and an Earnings Per Share (EPS) of 1.53. The question that arises is whether the stock is fairly valued. In this article, we delve into Viatris' valuation analysis to answer this question. Read on to gain a comprehensive understanding of the company's financial health and future prospects.
Understanding Viatris Inc (VTRS, Financial)
Viatris was established in November 2020 through the consolidation 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. By merging, Viatris became one of the largest generic drug manufacturers globally, servicing over 165 countries. Generics (commoditized and complex) and biosimilars make up roughly 40% of Viatris' 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.
Decoding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
The stock of Viatris (VTRS, Financial) is believed to be fairly valued based on GuruFocus' valuation method. GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $ 10.21 per share, Viatris stock is believed to be fairly valued.
Because Viatris is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength Analysis
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength. Viatris has a cash-to-debt ratio of 0.04, which ranks worse than 91.53% of 1039 companies in the Drug Manufacturers industry. The overall financial strength of Viatris is 4 out of 10, which indicates that the financial strength of Viatris is poor.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. 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 53.73% of 1031 companies in the Drug Manufacturers industry. Overall, the profitability of Viatris is ranked 6 out of 10, which indicates fair profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Viatris's 3-year average revenue growth rate is worse than 87.66% of 916 companies in the Drug Manufacturers industry. Viatris's 3-year average EBITDA growth rate is 0.5%, which ranks worse than 66.4% of 878 companies in the Drug Manufacturers industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Viatris's return on invested capital is 1.88, and its cost of capital is 5.22.
Conclusion
In summary, the stock of Viatris (VTRS, Financial) is believed to be fairly valued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 66.4% of 878 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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