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Is Viatris a Good Stock to Buy for 2021?

By Anirudh Shankar - May 30, 2021 at 6:01AM

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Long-term investors might want to consider adding this recently formed pharmaceutical company to their portfolios.

The volatility that's shaken the markets over the past few weeks has woken some investors up, sending them out shopping to look for cheap stocks. Finding quality, inexpensive stocks can be difficult -- but there are bargains out there.

One cheap stock worth considering is drugmaker Viatris (VTRS 1.76%). It trades at a ridiculously low price-to-earnings ratio of 4.2 and recently announced its first quarterly results and dividend payment. Viatris looks incredibly attractive at these levels, and its business is beginning to show signs of stability. Let me show you why you might want to consider buying Viatris stock this year. 

Looking at samples in lab

Image source: Getty Images.


The merger 

Viatris was formed in November via the merger of pharma company Mylan and Pfizer's Upjohn business unit, which manufactured off-patent generic drugs. While Mylan did bring a catalog with some specialty medications to the deal, the new company will largely produce generics and legacy-branded drugs -- those that are no longer patented, so they have generic competition, but have enough name recognition that they're able to compete well with their generic counterparts.

Viatris reported its first-ever quarter of earnings after the merger on May 10, and the report offered a number of takeaways that should be of keen interest to shareholders and potential investors. The biggest of those was that the company declared a quarterly dividend of $0.11, and set a benchmark of delivering ongoing dividends in line with 25% of free cash flow. At current share prices, Viatris' payout yields 2.87% -- more than double the 1.3% average yield of the S&P 500.

Another promising sign for the future comes from the company's debt-reduction plan. Management intends to cut its debt load by $6.5 billion by 2023. The company currently has in excess of $24 billion in debt on the books. Viatris in the first quarter showed that it is a cash cow, bringing in $4.4 billion in revenue and almost $800 million in free cash flow. If the company sustains this level of free cash flow for the entire year, bringing in an estimated $3.2 billion, management can definitely meet its debt reduction goals by 2023.

Some of its most popular products include both generics and legacy-branded drugs. These include the EpiPen and its generic counterpart (to treat anaphylaxis), Lyrica (for nerve pain), and Viagra (for erectile dysfunction). Demand for these incredibly popular products is not expected to decline throughout the next few years. The company also has 30 total drugs in its pipeline, with 12 nearing approval. Some notable biosimilars in this pipeline include analogues to AbbVie's Humira and Amgen's Enbrel. Humira has been the world's best-selling drug in years past, and Viatris will likely be able to generate sizable revenue by marketing its own biosimilar to treat a variety of indications.

The future

Viatris's new management includes executives from both Mylan and Pfizer's Upjohn division, meaning the team has a tremendous amount of experience navigating the generic and legacy-brand drug market. The company has a dominant market share in the EpiPen and its generic counterpart, as well as Viagra -- a lucrative position given that the global erectile dysfunction market is expected to reach $2.6 billion by 2026. While it is a legacy-brand drug that faces competition from generic alternatives, Viagra nonetheless remains the most distributed medication for this condition and is expected to account for 27% of market share, bringing its projected sales to $700 million by 2026, maintaining a greater market share over all generics that have been developed so far.  

As mentioned before, biosimilars for Humira and Enbrel should be heading to market here in the U.S., and the company has in fact already launched a Humira biosimilar in Canada. Humira brought in nearly $1 billion in Canadian sales for the 12 months ending Oct. 31 -- a sizable market in which Viatris could gather sales.

One thing that tells us the stock is cheap is its price-to-earnings ratio. Currently, Viatris trades at a forward P/E of just 4.2, making it one of the cheapest stocks on the market today. The consensus among analysts on Wall Street is that the stock will rise by 50% over the next year. With demand for generic drugs expected to rise, investors with long-term time horizons should take a close look at Viatris stock now.

Anirudh Shankar has no position in any of the stocks mentioned. The Motley Fool recommends Viatris Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Viatris Inc. Stock Quote
Viatris Inc.
VTRS
$10.96 (1.76%) $0.19
SPDR S&P 500 ETF Trust Stock Quote
SPDR S&P 500 ETF Trust
SPY
$419.99 (0.00%) $0.00
Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$48.29 (-3.32%) $-1.66
Amgen Inc. Stock Quote
Amgen Inc.
AMGN
$248.35 (-1.48%) $-3.74
AbbVie Inc. Stock Quote
AbbVie Inc.
ABBV
$142.08 (0.81%) $1.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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