My second "top pick" for the balance of 2022 is a stock that had a rough 2021. In fact, that performance, along with the fact that the company's forward price-earnings ratio for the following two years was below 15, helped land the company on my 2022 Tax Loss Selling Recovery Portfolio.
Pharmaceutical name Viatris Inc. (VTRS) , which was formed in late 2020 via the merger of Mylan and Upjohn, a legacy division of Pfizer (PFE) , was down 26% in 2021. Unfortunately, 2022 has not been any better, and VTRS is down 25% year to date.
On Feb. 28, the shares fell 24% to a 52-week low after the company announced lower-than-expected guidance, along with a deal to sell its biosimilar assets to India's Biocon Biologics. Guidance for 2022 suggested revenue from $17 billion to $17.5 billion, (which was below consensus of $17.57 billion), "adjusted" EBITDA of $5.8 billion to $6.2 billion, and free cash flow of between $2.5 billion and $2.9 billion.
The asset sale, which likely surprised the market as Viatris had been big on biosimilars, will net VTRS a 12.9% stake in Biocon and cash. Biocon is expected to go public within the next two years.
Viatris is another case, in my view, where the punishment doled out by the market, may not fit the crime. The growth crowd is no doubt unhappy with VTRS at this point, and has moved on. That leaves a company that is currently trading at between 4.5x and 5.2x expected 2022 free cash flow, and between 2.1x and 2.25x expected "adjusted" EBITDA (both base on company guidance). VTRS also trades at just over 3x 2022 and 2023 consensus earnings estimates.
Part of the doubt about Viatris is likely its debt load, which stood at a whopping $23 billion at year-end 2021. Net debt, after subtracting cash and short-term investments of $790 million, is still substantial at $22.2 billion. However, the company did make some inroads in terms of debt reduction in 2021 to the tune of $2.1 billion.
Viatris recently authorized a $1 billion stock buyback; if the company follows through, that might help put a floor of sorts in the stock price. In addition, VTRS pays a $0.12 quarterly dividend, good for a 4.5% indicated yield. It recently hiked the dividend 9%.
The combination of a rising dividend along with stock buybacks can be powerful, and suggests management confidence. Whether that confidence is founded or unfounded remains to be seen.