West Pharmaceutical Services Inc (WST, Financial) experienced a daily loss of -8.57% and a three-month loss of -13.7%. Despite these figures, the company reported an Earnings Per Share (EPS) of 6.86. The question that arises is: Is West Pharmaceutical Services modestly undervalued? This article aims to provide an in-depth analysis of the company's valuation. So, let's delve into the details.
Company Overview
West Pharmaceutical Services is a Pennsylvania-based medical supplies company that operates as a key supplier to firms in the pharmaceutical, biotechnology, and generic drug industries. The company's product range encompasses basic equipment such as syringes, stoppers, and plungers, to more advanced devices like auto-injectors and other self-injection platforms. West Pharmaceutical Services' revenue is generated 55% from international markets and 45% from the United States.
The company's stock price currently stands at $327.32, with a market cap of $24.20 billion. When compared with the GF Value of $393.06, it appears that the stock might be modestly undervalued. The following income breakdown provides a clearer picture of the company's financial performance.
Understanding the GF Value
The GF Value is a proprietary measure that calculates the intrinsic value of a stock. It is derived from historical multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
According to our valuation method, the stock of West Pharmaceutical Services is estimated to be modestly undervalued. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued, and its future returns might be poor. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued, and its future returns could be high. Given that West Pharmaceutical Services is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could lead to permanent capital loss. Hence, it is crucial to review a company's financial strength before deciding to buy shares. West Pharmaceutical Services has a cash-to-debt ratio of 2.56, which ranks better than 50.54% of 831 companies in the Medical Devices & Instruments industry. Based on this, GuruFocus ranks West Pharmaceutical Services's financial strength as 9 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. West Pharmaceutical Services has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.90 billion and Earnings Per Share (EPS) of $6.86. Its operating margin is 24.54%, which ranks better than 88.42% of 829 companies in the Medical Devices & Instruments industry. Overall, the profitability of West Pharmaceutical Services is ranked 9 out of 10, which indicates strong profitability.
Growth is an essential factor in the valuation of a company. The 3-year average annual revenue growth rate of West Pharmaceutical Services is16%, which ranks better than 70.25% of 726 companies in the Medical Devices & Instruments industry. The 3-year average EBITDA growth rate is 25.8%, which ranks better than 71.94% of 727 companies in the same industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, West Pharmaceutical Services's ROIC was 24.16, while its WACC came in at 11.16.
Conclusion
In conclusion, the stock of West Pharmaceutical Services appears to be modestly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 71.94% of 727 companies in the Medical Devices & Instruments industry. To learn more about West Pharmaceutical Services stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
