Benzinga - by Zacks, Benzinga Contributor.
West Pharmaceutical Services, Inc. (NYSE: 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 6.6% year to date against the industry's 2% growth. The S&P 500 Index has increased 15.2% in the same time frame.
West Pharmaceutical, with a market capitalization of $23.46 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 7.3% over the next five years. The company delivered a trailing four-quarter average earnings surprise of 12.02%.
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Let's delve deeper.
Key Catalysts Although sales of the Proprietary Products business declined in the first quarter of 2024, the segment continues to exhibit strength and is an important contributor to WST's top line. Proprietary Products' customers primarily comprise several major biologic, generic and pharmaceutical drug companies globally that incorporate its components and other offerings in their injectable products.
Sales were negatively impacted during the first quarter by lower high-value product (HVP) sales and weak Generic product sales. However, the unfavorable factors are unlikely to continue in upcoming quarters as the company maintains its market share. Moreover, HVP sales are also expected to improve going forward with no slowdown in view.
Approval for new biologics should bring in additional revenues, further boosting the Biologics market unit's top-line growth. Sales declined 3% organically in the first quarter of 2024. High-value products (components and devices) accounted for more than 70% of segmental sales and delivered mid-single-digit organic sales growth. Per management, the top-line decline was driven by Proprietary Products' lower HVP sales and weak Generic product sales. However, higher Contract Manufacturing component sales and continued demand for NovaPure and self-injection device platforms partially offset the decline.
West Pharmaceutical also continues to expand its high-value product manufacturing capacity to support rising customer demand from recent launches and anticipates drug programs in the coming years.WST maintains its research-scale production facilities and laboratories for creating new products. It also 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 first quarter, the company's R&D expenses increased 2.9% from the prior-year period's level.
West Pharmaceutical remains committed to seeking innovative opportunities for the acquisition, licensing, partnering or development of products, services and technologies. The company is focused on its objective of connecting dots throughout science and technology for potential value creation.
Factors Hurting the Stock The growing exposure to international markets makes WST susceptible to adverse foreign exchange volatility. Unfavorable fluctuations in currency exchange rates can affect the company's international sales. Although weaker, declining sales related to COVID-19 vaccines continue to hurt the Biologics market unit. The company expects to reach pre-COVID levels soon. However, destocking by WST's customers is likely to continue to hurt the top line like the first quarter.
Contraction in gross and operating margins does not bode well.
Estimates Trend The company has been witnessing an improving estimate movement for 2024. In the past 60 days, the Zacks Consensus Estimate for earnings has increased 1.8% to $7.76 per share. The figure implies a decline of 4% from the prior-year level. The consensus mark for revenues is pegged at $3.01 billion, indicating a 2% increase from the 2023 level.
West Pharmaceutical Services, Inc. Price
West Pharmaceutical Services, Inc. price | West Pharmaceutical Services, Inc. Quote
Stocks to Consider Some better-ranked stocks in the broader medical space are DaVita Inc. (NYSE: DVA), Boston Scientific (NYSE: BSX) and Hologic (NASDAQ: HOLX).
DaVita, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 13.6%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 29.4%.
DaVita's shares have risen 35.7% compared with the industry's 8.4% growth year to date.
Boston Scientific, carrying a Zacks Rank of 2 at present, has an estimated earnings growth rate of 12.5% in 2024. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 7.49%.
BSX's shares have risen 32.1% year to date compared with the industry's 3% growth.
Hologic, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 7.4%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 4.94%.
Hologic's shares have risen 0.1% year to date compared with the industry's 5.6% growth.
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