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 12.8% year to date against the industry's 2.8% growth. The S&P 500 Index has increased 23.4% in the same time frame.
West Pharmaceutical, with a market capitalization of $22.78 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 2% over the next five years. The company delivered a trailing four-quarter average earnings surprise of 8.04%.
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Let’s delve deeper.
Key Catalysts
West Pharmaceutical exited the third quarter with better-than-expected results. Although the decline across its Generics and Biologics business units is concerning, the company’s significant recovery from customer destocking impact during the second quarter looks promising. The fourth-quarter results are likely to reflect strong recovery, with year-over-year quarterly sales improvement. This is reflected in WST’s updated outlook for the year. The company also expects a currency headwind to have a lesser impact on organic revenue growth than that expected previously.
Sales were negatively impacted during the third quarter by lower sales of Generics and Biologics market units. However, the unfavorable factors are unlikely to continue in the upcoming quarters as WST maintains its market share. Moreover, HVP sales are also expected to improve going forward with no imminent slowdown.
Approval for new biologics should bring in additional revenues, further boosting the Biologics market unit’s top-line growth. Sales declined 0.5% organically in the third quarter of 2024. High-value products (components and devices) accounted for more than 75% of segmental sales and delivered mid-single-digit organic sales growth. Sales of the Proprietary Products segment's Pharma market unit reflected a mid-single-digit percentage point organic growth during the quarter, driven by higher sales of NovaBrand products and Administrative Systems. However, the Generic market unit registered a mid-single-digit percentage point decline in sales due to lower volumes of NovaBrand products. The Biologics market unit recorded a low-single-digit organic sales decline owing to lower sales of FluroTec, Westar and NovaPure products.
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 third 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. Meanwhile, the contraction in gross and operating margins does not bode well for the company. The majority of this contraction is due to the rising cost of materials, which is likely to have continued in the fourth quarter.
West Pharmaceutical Services, Inc. Price
West Pharmaceutical Services, Inc. price | West Pharmaceutical Services, Inc. Quote
Estimates Trend
The company has been witnessing an improving estimate movement for 2024. In the past 30 days, the Zacks Consensus Estimate for earnings has increased 2.6% to $6.59 per share. The figure implies a decline of 2.2% from the prior-year level. The consensus mark for revenues is pegged at $2.88 billion, indicating a 2.5% decrease from the 2023 level.
Stocks to Consider
Some better-ranked stocks from the medical industry are Masimo MASI, AngioDynamics ANGO and Globus Medical GMED.
Masimo, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated growth rate of 10.4% for 2025. You can seethe complete list of today’s Zacks #1 Rank stocks here.
MASI’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 17.10%. Masimo’s shares have risen 37.2% year to date compared with the industry’s 6.7% growth.
AngioDynamics, carrying a Zacks Rank #2 at present, has an estimated growth rate of 38.2% for 2025. ANGO’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 31.71%.
AngioDynamics’ shares have lost 8.9% year to date against the industry’s 6.7% growth.
Globus Medical, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 12.7%. GMED’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.1%. Its shares have risen 56.5% year to date compared with the industry’s 6.7% growth.
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