Should You Exit This Large-Cap Pharmaceuticals Stock – VTRS

Mar 01, 2022 12:00 AM PST | Team Kalkine
Should You Exit This Large-Cap Pharmaceuticals Stock – VTRS


Viatris Inc.

Viatris Inc. (NASDAQ: VTRS) is a pharmaceutical company that provides medicines and long-term therapy to patients in more than 165 countries. Its portfolio is diversified into Brands, Complex Generics and Biosimilars, and Generic divisions, contains approximately 1,400 authorized compounds across a variety of therapeutic areas that tackle both communicable and non-communicable disorders.

Why Should Investors Book Profit?

  • Key Disinvestment: On February 28, 2022, VTRS has sold its Biosimilars business to Biocon Biologics Ltd., for a total consideration of USD 3.335 billion in cash and stock, representing a transaction multiple of 16.5x of estimated FY22 biosimilars adjusted EBITDA. 
  • Weak Liquidity Profile: The company's current ratio at the end of Q3FY21 is 1.12x, compared to the industry median of 2.95x. This implies relatively lackluster liquidity profile against the industry median.
  • Leveraged Balance Sheet: The company is more exposed to balance sheet risk than its peers, with a Debt/Equity ratio of 1.11x as of September 30, 2021, compared to the industry norm of 0.43x. Furthermore, its long-term debt-to-total-capital ratio was 44.5%, compared to the industry average of 25.8% for the same period. These leveraged financials put the corporation at risk of huge swings due to the slightest adjustment in interest rates.
  • Technical weakness: On the daily chart, VTRS prices are sustaining below the downward sloping trend line and facing the resistance of the same. Furthermore, the momentum oscillator RSI (14-period) is trading at ~46.64 level, showing indecisiveness of stock at current level. However, on the daily chart the prices are trading below the trend-following indicators 21-period and 50- period SMA, which may act as a resistance level for the stock. An important support level for the stock, is placed at USD 13.50 while the key resistance level is placed at USD 15.50.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

VTRS' share price has inclined 16.13% in the past three months and is currently leaning towards the higher band of the 52-week range of USD 10.88 to USD 16.29. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 12.76.

Considering the company's disinvestment of key business assets, leveraged balance sheet, weak liquidity profile, current valuation and associated risks. we recommend a "Sell" rating on the stock at the closing price of USD 14.54, up 4.38% as of February 25, 2022.            

Three-Year Technical Price Chart (as of February 25, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.