West Pharmaceutical Services once again showed that it’s more than just a GLP-1 play. Since CNBC highlighted the stock’s attractive valuation in August, shares have gained around 20%. On Thursday, the stock hit a 52-week high in the wake of a strong third-quarter report and raised guidance. Third-quarter adjusted EPS rose 35.7% to $2.66 on sales of $874.5 million, up 8.7% from a year ago. Analysts were looking for roughly $2.20 a share, according to FactSet. The company now expects full-year adjusted EPS of $9.38 to $9.48, up from its previous range of $8.85 to $9.05. The GLP-1 boom is certainly helping. Also on Thursday, Eli Lilly reported third-quarter revenue growth of 39% to $24.4 billion, led by its diabetes and obesity franchises. Mounjaro sales rose 65% to $10.7 billion, while Zepbound gained 49% to $5.35 billion. Lilly anticipates the growth will continue and hiked its annual forecast. West, which supplies components used in injectable drug-delivery systems, is a natural beneficiary of this robust demand. But there is much more to this story than weight-loss drugs, as we said in August. Three things stand out in the latest results. More premium products First, West is selling more of its premium products. Proprietary products sales grew 12.6% to $728.8 million, comfortably outpacing the 2.9% growth at its contract-manufactured products. The more commodity-like standard products business accounted for just 19% of sales. Within proprietary products, sales of lucrative high-value components grew 20.3% from the same quarter last year, and now represent 53% of sales. This segment includes elastomer closures and containment systems for injectors, but it’s worth noting that the growth outside the GLP-1 business was in the high teens, CFO Robert McMahon said. “This underscores our view that overall injectable market continues to provide runway for both increased volumes from existing and new drugs and for HVP upgrades across our existing portfolio,” McMahon said. He also reported more than 200 high-value product upgrade projects added by customers this year. Some of that business is being driven by regulatory changes, which should be a “multi-year tailwind” to the business, he said. The message: Customers are increasingly choosing West’s higher-value components over more basic alternatives. Profitability on the rise Second, profits are growing much faster than sales. Adjusted EPS jumped nearly 36%, well ahead of organic sales growth of roughly 12%. That gap reflects better operating leverage, as a growing mix of premium products and improved efficiency help more revenue reach the bottom line. Management expects operating margins to expand by nearly 300 basis points this year. Disciplined investment Third, growth isn’t coming at the expense of investment discipline. Capital spending is expected to total $215 million to $220 million, consistent with West’s long-term target of 6% to 8% of revenue. That should leave room for earnings growth to translate into cash generation. The bottom line: GLP-1s are an important tailwind, but the investment case doesn’t depend on them alone. West is selling a richer mix of products, expanding margins and generating more earnings from each dollar of sales. Those are the ingredients of a durable growth story, not simply a bet on the next blockbuster drug. WST 3M mountain West Pharmaceutical Services performance past 3 months Shares are up more than 4% in afternoon trading, after hitting a high of $438.27. We first recommended West on Aug. 5 at $349. These results reinforce our thesis, and we continue to like the stock. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
West Pharma earnings show it’s more than a GLP-1 play. Why we see more upside
By admin
0
10
RELATED ARTICLES
