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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 lost 22.1% against the industry's gain of 5.9% in the past six months. The S&P 500 Index has fallen 0.2% in the same period.

West Pharmaceutical — with a market capitalization of $17.82 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 5.07%, on average.

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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 for distribution to patients.

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Sales improved 4.3% organically in the third 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 NovaPure, Envision and Daikyo Crystal Zenith components and self-injection devices led to the upside.

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 and 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. In the third quarter of 2022, the company's R&D expenses increased 3.8% from the prior-year quarter.

West Pharmaceutical remains committed to seeking new innovative opportunities for the acquisition, licensing, partnering or development of products, services and technologies. WST is focused on its objective to connect dots throughout science and technology to fulfill ideas 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 West Pharmaceutical's international sales. On the third-quarter 2022 earnings call, the company projected forex headwind on revenues of $60 million for the fourth-quarter of 2022.

Moreover, the continued fall in the Contract-Manufactured Products segment is a concern. Lower demand for COVID-related products is worrying from the business perspective. Contraction in gross margin does not bode well. The lowering of West Pharmaceutical’s full-year financial outlook also raises apprehensions.

Estimates Trend

West Pharmaceutical has been witnessing an upward estimate revision trend for 2023. In the past 30 days, the Zacks Consensus Estimate for its earnings has improved 0.8% to $7.28 per share.

The Zacks Consensus Estimate for 2023 revenues stands at $2.86 billion, suggesting growth of 0.9% from the year-ago reported number.

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 from the broader medical space areAMN Healthcare Services, Inc. AMN, Merit Medical Systems MMSI and McKesson Corporation MCK.

AMN Healthcare, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.96%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcarehas lost 3.7% compared with the industry’s 10.2% fall in the past six months.

Merit Medical Systems, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average beat being 25.35%.

Merit Medical Systems has gained 32% compared with the industry’s 5.9% increase in the past six months.

McKesson, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.1%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same twice, the average beat being 4.79%.

McKesson has gained 16.4% compared with the industry’s 5.9% increase in the past six months.

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McKesson Corporation (MCK) : Free Stock Analysis Report

Merit Medical Systems, Inc. (MMSI) : Free Stock Analysis Report

AMN Healthcare Services Inc (AMN) : Free Stock Analysis Report

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

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