Some stocks deliver sizzling gains. Their businesses are exciting. Investors’ buzz about these stocks can be deafening. And then there are stocks like Viatris (NASDAQ:VTRS).
No sizzling gains here. Viatris’ shares have plunged more than 25% year to date. The company makes generic drugs, a relatively boring business. You won’t hear many other investors gush about Viatris. It sometimes seems like no one talks about the stock at all.
However, analysts’ sentiment about Viatris is a lot more positive than you might think. Here’s why Wall Street thinks this dirt cheap value stock could soar.
Nowhere to go but up
The consensus price target for Viatris reflects a 44% premium above its current share price. None of the 13 analysts surveyed by Refinitiv expect that the pharma stock will decline over the next 12 months.
Why does Wall Street have such great expectations for a stock that has admittedly not been a great performer? Analysts probably think that Viatris has nowhere to go but up.
There are only three large-cap stocks that have lower forward earnings multiples than Viatris does right now. Viatris trades at less than four times expected earnings. In other words, Viatris could theoretically buy back all of its shares by mid-2025 if it wanted to do so.
To be sure, Viatris is highly unlikely to embark on such a massive stock buyback. The company places a top priority on using its earnings to fund its dividend program and paying down debt instead.
Better days ahead
Cheap stocks can get even cheaper if they don’t have improving prospects, though. The good news for Viatris is that the company should enjoy better days ahead.
The company recently won U.S. approval for Semglee, an insulin glargine biosimilar. What’s especially notable about this is that it’s the first interchangeable biosimilar approval. That means Semglee can be substituted for branded products such as Lantus by pharmacists without requiring a new prescription. Viatris plans to launch Semglee later this year.
The drugmaker’s biosimilar to Humira will be able to enter the U.S. market in 2023. Humira has ranked as the world’s top-selling drug for several years. While other biosimilars will also be available, Viatris should be able to generate strong sales from its product.
Viatris thinks that it will be able to pick up another interchangeable approval in the near future for Aspart, a biosimilar to NovoLog/NovoRapid. It expects to file for approval of a biosimilar to eye disease drug Eylea in the fourth quarter of this year. The company is also awaiting U.S. approval of its biosimilar to cancer drug Avastin.
Meanwhile, Viatris continues to make progress on achieving synergies from the merger of Mylan and Upjohn. It’s on track to realize $500 million in cost synergies this year and expects the total to top $1 billion by 2023.
I think it’s quite possible that the Wall Street consensus price target for Viatris could be overly optimistic. It wouldn’t surprise me at all if the stock doesn’t soar anywhere close to 44% higher over the next 12 months.
Despite analysts’ rosy forecast, Viatris probably isn’t a stock that growth-oriented investors will want to buy. However, my view is that Viatris is a great pick right now for two other groups of investors.
Income investors should like the company’s dividend yield of around 3%. Look for the dividend to grow over time.
Value investors should especially be attracted to Viatris. The stock truly is dirt cheap right now. Boring stocks like Viatris that can be bought at a discount and that also have solid prospects won’t cause you to lose any sleep.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.