Company Reports

Wide-moat West Pharmaceutical’s first quarter was slightly better than we expected, with reported sales and organic sales down only 3% year on year instead of our forecast of a 6%-7% decline. At first glance, we are maintaining our fair value estimate of $336, and shares declined closer to our fair value after earnings. We continue to think the company’s long-term story is attractive and has potential upside, depending on the impact that the GLP-1 obesity drug industry will have on West’s long-term sales.

West’s fourth-quarter earnings were in line with expectations, but 2024 guidance disappointed due to revenue growth forecasts that were about 6-7 percentage points lower than our expectations. However, we believe the headwinds that management highlighted are likely to be transitory. We have also reviewed our thoughts on the company and reaffirm our wide moat rating thanks to its very strong intangibles and switching costs. We have revised our fair value estimate upward to $336 per share from $290 primarily to reflect updated assumptions on long-term growth. After the recent selloff, we view shares as only slightly above our fair value and think the long-term story remains intact, despite the headwinds in 2024.

West Pharmaceutical Services is the global market leader in primary packaging and delivery components for injectable therapeutics. Primary packaging has direct contact with the drug product and must be manufactured to ensure stability, purity, and sterility of the drug product in accordance with strict regulatory standards. Because of the mission-critical nature of these components, it is important for customers to trust the quality of manufacturing and design. Key product lines include elastomer components such as stoppers, seals, and plungers, Daikyo Crystal Zenith vials made out of polymer instead of glass, and auto-injectors. Injectables includes not only older modalities like small molecule drugs, insulin, and vaccines but also biologics and GLP-1 obesity drugs.

Wide-moat West Pharmaceutical reported third-quarter earnings in line with our expectations. Total organic net sales grew 5.7% year over year, signifying the wind-down of COVID-19-related sales declines. Base sales excluding COVID-19 products increased by over 20% organically year over year, but management trimmed net sales guidance for 2023 to reflect the potential impacts of customers' restocking trends in the fourth quarter. We are maintaining our $290 fair value estimate as our top-line forecast was lower than previous guidance. Shares dropped 11% after the earnings release but still look overvalued to us.

West Pharmaceutical saw a 2.3% net sales decline in the second quarter, with a sharper decline in adjusted diluted EPS, but management slightly raised expectations for both measures for the full year. Our earnings forecast was already above the high end of prior guidance, so we are maintaining our $290 fair value estimate.

Life science toolmakers that enable drug production operate attractive businesses for two major reasons that investors often find compelling. First, regulation of the drug manufacturing process creates highly durable switching costs for end users and long potential revenue streams for life science toolmakers. Second, life science firms often benefit from broad exposure to biopharmaceutical growth without taking on much product-specific risk.

West Pharmaceutical Services is the global market leader in primary packaging and delivery components for injectable therapeutics. Primary packaging is the material that first envelops a drug product, and safe production of drug-delivery packaging is critical for the successful delivery of pharmaceutical products. Packaging must ensure drugs don’t leak into the surrounding material and vice versa. Because of the mission-critical nature of these components, it’s important for customers to trust the quality of manufacturing and design.

Wide-moat West Pharmaceuticals posted solid first-quarter results despite a tough comparable quarter. Strong organic demand for non-COVID-19 injectable packaging kept pace with the loss in demand for vaccine packaging, and management gave a slight lift to its guidance. We expect to raise our fair value estimate by high-single digits after updating our model.

Wide-moat West Pharmaceutical delivered solid fourth-quarter results, with full-year results in line with management’s previously stated guidance. Sales declined in the quarter by 3%, and full-year sales growth for 2022 was 2% (organic net sales growth of 7.7%) year over year. While the company continues to face foreign exchange headwinds and inflationary pressure paired with a significant drop off from COVID-19-related sales, we are maintaining our $280 fair value estimate, and shares appear overvalued.

West Pharmaceutical Services is the global market leader in primary packaging and delivery components for injectable therapeutics. Primary packaging is the material that first envelops a drug product, and safe production of drug-delivery packaging is critical for the successful delivery of pharmaceutical products. Packaging must ensure drugs don’t leak into the surrounding material and vice versa. Because of the mission-critical nature of these components, it’s important for customers to trust the quality of manufacturing and design.

Wide-moat West Pharmaceutical reported disappointing third-quarter results driven by sales and gross profit below our expectations. The company was not immune to foreign exchange headwinds and inflationary pressures, and we are adjusting our near-term assumptions given management’s new 2022 revenue guidance. We maintain our $280 fair value estimate given our confidence in the company's long-term outlook, and shares appear undervalued following the market’s negative reaction to third-quarter earnings.

West Pharmaceutical Services is the global market leader in primary packaging and delivery components for injectable therapeutics. Primary packaging is the material that first envelops a drug product, and safe production of drug-delivery packaging is critical for the successful delivery of pharmaceutical products. Packaging must ensure drugs don’t leak into the surrounding material and vice versa. Because of the mission-critical nature of these components, it’s important for customers to trust the quality of manufacturing and design.

West Pharmaceutical Services is the global market leader in primary packaging and delivery components for injectable therapeutics. Primary packaging is the material that first envelops a drug product, and safe production of drug-delivery packaging is critical for the successful delivery of pharmaceutical products. Packaging must ensure drugs don’t leak into the surrounding material and vice versa. Because of the mission-critical nature of these components, it’s important for customers to trust the quality of manufacturing and design.

West Pharmaceutical Services is the global market leader in primary packaging and delivery components for injectable therapeutics. Primary packaging is the material that first envelops a drug product, and safe production of drug-delivery packaging is critical for the successful delivery of pharmaceutical products. Packaging must ensure drugs don’t leak into the surrounding material and vice versa. Because of the mission-critical nature of these components, it’s important for customers to trust the quality of manufacturing and design.

West Pharmaceutical Services is the global market leader in primary packaging and delivery components for injectable therapeutics. Primary packaging is the material that first envelops a drug product, and safe production of drug-delivery packaging is critical for the successful delivery of pharmaceutical products. Packaging must ensure drugs don’t leak into the surrounding material and vice versa. Because of the mission-critical nature of these components, it’s important for customers to trust the quality of manufacturing and design.

Wide-moat West Pharmaceutical had a decent second quarter, with slightly below-expectation sales and gross profit more than offset by lower relative operating costs, and we see results as good overall considering the dual headwinds of softer COVID-19 demand and foreign exchange effects. We are keeping our $280 fair value estimate intact, and in our view, shares are overvalued following the market’s positive reaction to earnings.

West Pharma demonstrated impressive pricing power in the first quarter of 2022 and managed to maintain margin despite inflationary headwinds. There is no change to our $280 fair value estimate and wide moat rating. After a bit of a roller coaster over the past year, West's shares have come back to their level from a year ago, and the stock now appears fairly valued in our view. The market’s negative reaction to earnings (down over 5%) doesn’t seem to be justified by any changes to the fundamental view of West’s long-term cash flows.

Wide-moat West Pharma ended the year with solid growth, and while results met our expectations, we were surprised by management’s bullish guidance for 2022. We are lifting our fair value estimate to $280 from $265, as we have reversed our previous expectation that sales would decline mid-single-digits. The combined impact of our view that the U.S. corporate tax rate is likely to remain at 21% and time value of money from rolling our model contributed about $7.50 to the increase. Despite our valuation increase, shares remain moderately overvalued, even following a 17% decline from the stock's recent highs.

West Pharmaceutical Services is the global market leader in primary packaging and delivery components for injectable therapeutics. Primary packaging is the material that first envelops a drug product, and safe production of drug-delivery packaging is critical for the successful delivery of pharmaceutical products. Packaging must ensure drugs don’t leak into the surrounding material and vice versa. Because of the mission-critical nature of these components, it’s important for customers to trust the quality of manufacturing and design.

Most medical technology and device companies under our coverage have economic moats, but attractive valuations are hard to find, and the sector trades at an average price/fair value estimate of 1.33.