When it made its debut last November, Viatris (VTRS) was touted as a value-unlocking divestiture. The pharmaceutical company, formed when Pfizer (PFE) merged its Upjohn unit with Mylan NV, started off trading for around $18 per share, but today it changes hands for around $13.46 per share.
What is behind Viatris’ decline? Blame it on its disappointing earnings and guidance released in February. For the December quarter, results fell sharply short of expectations, and as for guidance, the company has all but written off 2021. CEO Michael Goettler himself referred to it as Viatris’ “trough year in terms of revenue, adjusted EBITDA and free cash flow.”
In short, the expectation is that this year will be a transitional one for the company. That is bad news for anyone looking at this as a short-term play, but over a longer time frame, there may be a pathway for shares to compensate for their recent losses.
Once the company’s multi-year restructuring plan is complete, its annual operating costs could be reduced by $1 billion. This value-add may help fuel an eventual rebound for Viatris shares.
Why Investors Have Discarded VTRS Stock
Pfizer’s rationale for merging Upjohn with Mylan to create Viatris explains why investors have written it off as a weak opportunity. For years, Upjohn, which comprised Pfizer’s portfolio of older drugs that have gone generic (such as Viagra), was holding down its valuation. By merging the unit with Mylan, with Pfizer shareholders holding more than half of the combined entity, the company was able to divest this unit in a tax efficient way.
For years, Mylan has acquired pieces of other pharma companies, with mixed success. However, with a massive restructuring ahead, Mylan (now Viatris) may be able to prove its skeptics wrong, make up for its recent losses, and create additional value for its shareholders. Although Mylan has a poor track record of gaining any added value from its acquisitions, its current plan holds promise.
Back in December, Viatris presented its strategy to reduce operating costs by $1 billion per year. This restructuring will be a multi-year process which won’t wrap up until 2024, but the bulk of the upside is projected to be realized within the next two years. Over time, as it reduces its workforce by 20%, and closes, downsizes, or sells 15 of its manufacturing facilities, earnings could come in higher than expected.
What Analysts Are Saying About VTRS Stock
According to TipRanks’ consensus breakdown, VTRS stock comes in as a Moderate Buy. Out of 9 analysts covering the stock, 3 rate it a Buy, 6 analysts rate it a Hold, and 0 analysts rate it a Sell.
As for price targets, the average analyst price target on VTRS stock today is $18.29 per share, implying around 35.9% upside potential from today’s prices. Analyst price targets range from a low of $15 per share to a high of $24 per share. (See Viatris stock analysis on TipRanks)
TipRanks’ Smart Score
According to TipRanks’ Smart Score, which analyzes stocks based on eight factors extracted from our unique datasets, Viatris has a Smart Score of 3, meaning it will likely underperform the broader market.
Bottom Line
With the multi-year restructuring, Viatris may bounce back from its recent losses and head towards higher price levels, but there is no guarantee this will go off without a hitch.
The flip side to the long-term cost savings is short-term restructuring costs. If sales come in lower than expected, while the company is concurrently making big cash outlays to downsize operations, shares could continue to head lower as investors lose more confidence in its prospects.
Bottom line: as it remains a “wait and see” situation for most investors, it is going to take some time for the stock to rebound once again. As more investors start to see this as a turnaround play in its early stages, it may start trending in the right direction.
Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
