For a generic drugmaker like Viatris (VTRS 0.35%), big spurts of growth are unlikely. The market for low-cost generic medications is competitive, and success is largely defined by maintaining strong cash flows that enable returning capital to investors. 

So when the Wall Street average estimate calls for shares to rise by 25% by this time next year, investors' ears should perk up, because business probably won't be as usual. But could this stock actually outperform the benchmark set by Wall Street under the right conditions? It's more likely than it might seem. Here's why. 

More sales, lower costs, and more payouts to shareholders are on the way

For Viatris to grow, it needs to commercialize more generic versions of medicines by proving to regulators that what it's making is equivalent to the branded editions. Because the burden of proof it needs to meet is much lower than for never-used-before novel medicines, there isn't nearly as much risk that the generics in its pipeline will fail to prove their safety and efficacy. Nor does it need to spend as much on research and development (R&D), as any clinical trials it needs to perform are of a more limited scope. Likewise, because the branded versions of its drugs have already been on the market for long enough to lose their exclusivity protections, the company can be confident that there's a market of buyers for what it's developing. And it has quite a few candidates cooking that'll likely be approved for sale within the next five years.

From its complex injectable generics segment alone, management is predicting an additional $1 billion per year in sales by 2027. By 2028, its novel and complex assets, some of which require standard biopharma-style clinical trials, should contribute an additional $1 billion per year. The same is true for its eye care segment in the same period. So in total the next five years will see it add a minimum of $3 billion to its trailing 12-month (TTM) revenue of $15.8 billion.

At first glance, that pace of revenue growth is wholly insufficient to drive much in the way of gains for its stock. But while that happens, the company will be making a few other changes that'll benefit shareholders, potentially by quite a bit.

First, it'll be paying down its debt load of $18.2 billion; in the most recent quarter, it repaid $546 million. That'll give it more free cash flow (FCF) to spend on reinvesting in growth. Second, it'll be returning more capital to shareholders in the form of its dividend, which will likely rise, and share repurchases, which it already spent $250 million on in Q1. And it's on track to realize around $1 billion in cost synergies before the end of the year too.

In other words, the analysts are likely looking forward to all of these improvements with their price target, as they'll make the stock a lot more appealing to investors with a long-term mindset. But it's hard to see how anything discussed so far could drive the stock to climb by as much as they're calling for within the next 12 months. After all, the average revenue estimate for the company suggests that its sales will fall in 2023 and then again in 2024 due to planned divestments of parts of its business.

A big play or two from Viatris management will be needed

While it's not likely for Viatris to rise by 25% by mid-2024, there is still a path for it to grow by that much, if not more, and management has already signaled that it's a possibility. 

Acquisitions of lucrative uncommercialized pharmaceutical assets and perhaps even smaller biopharma companies could easily ignite a bull run in the stock. Given that its TTM FCF is $2.5 billion, and that it also has around $587 million in cash and equivalents in the bank, the business has all the resources it would need to pursue a bolt-on growth strategy. Astute investors will also recognize that such volumes of capital would be sufficient for Viatris to diversify into new segments if it might be profitable to do so. Even spinning up R&D capabilities to develop new medicines in-house from scratch is doable. It could even invest in expanding its manufacturing capacity to drive down its unit costs further, which might help it to undercut the competition. 

Nonetheless, hopes for future acquisitions to change up the stock's meandering rate of growth aren't enough to justify the analysts' estimates. While it's true that profitably adding to its top line will provide earnings for shareholders to enjoy for many years to come, it is likely that the market will not bid up the price of Viatris stock to reflect that in the near term. After all, its strategic plans to return capital while deleveraging debt and onboarding new medicines are the same as they were in 2021, and successfully executing on those priorities in 2021 and 2022 didn't prevent its stock from falling by 7% in the last 12 months.