Please ensure Javascript is enabled for purposes of website accessibility

Why Viatris Stock Rocketed Higher in May

By George Budwell - Jun 8, 2021 at 12:29PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This undervalued dividend stock finally found its footing in May.

What happened

Shares of the generic-drug giant Viatris (VTRS 3.70%) -- the offshoot of Pfizer's legacy-medicines unit UpJohn and generic-specialist Mylan -- roared higher by a healthy 14.6% during the month of May, according to data provided by S&P Global Market Intelligence . The drugmaker's stock rallied last month in response to a stronger-than-expected 2021 first-quarter earnings report.

Most significantly, Viatris beat Wall Street's Q1 consensus estimate by a respectable $200 million. What's more, management also declared an inaugural quarterly dividend of $0.11 per share and reaffirmed the company's 2021 financial guidance.

A pharmacist inspecting a pill bottle.

Image source: Getty Images.

So what

Viatris' shares were down by a whopping 29% year to date heading into May. Investors and analysts alike clearly weren't convinced that the company's stable of off-patent former blockbuster medicines could create value over the long term. Echoing this point, Bernstein analyst Ronny Gal has argued since the company's formation last November that it would have to partake in at least one major bolt-on acquisition to become a viable growth company.

Generic drugs, after all, have been facing a bevy of hurricane-force headwinds over the last several years, resulting in the steady erosion of profit margins across the space. Viatris, however, quieted at least some of its critics last month by rolling out a fairly healthy 2021 revenue forecast ($17.5 billion at the midpoint) and initiating a dividend program that amounts to a 2.86% annual yield at current levels.  

Now what

Is this big pharma stock still a buy following last month's uptick? If you're the patient type with an appetite for deep value in your stock selections, Viatris arguably needs to be on your radar right now.

The key reason is that Viatris is one of the cheapest stocks within the realm of major drug manufacturers, with its shares trading at a forward-looking price-to-earnings ratio (P/E) of 4.15 as of the time of this writing. To put this valuation metric into the proper context, the average forward-looking P/E within the company's immediate peer group of large-cap biopharmas presently stands at around 34.

Viatris' shares are extremely undervalued from this perspective -- especially for a company that pays a dividend that hovers around the industry average. This generic-drug titan should thus appeal to both bargain hunters and dividend investors alike.   

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

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Viatris Inc. Stock Quote
Viatris Inc.
$10.09 (3.70%) $0.36
Pfizer Inc. Stock Quote
Pfizer Inc.
$49.57 (0.61%) $0.30

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.