Updated on February 18th, 2025 by Felix Martinez
We provide an individual analysis of all Dividend Aristocrats each year. West Pharmaceutical Services (WST) is the next up in our annual Dividend Aristocrats In Focus series.
The shares have performed extremely well in recent years. This performance was based on strong earnings growth and an expanding valuation multiple.
West Pharmaceutical has also raised its dividend for 32 consecutive years, which means it is on the Dividend Aristocrats list.
We have compiled a list of all 69 Dividend Aristocrats and important financial metrics such as price-to-earnings ratios and dividend yields. You can download the full list by clicking on the link below:
Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.
This article will discuss West Pharmaceutical’s business model, growth potential, competitive advantages, and whether we view the stock as a buy right now.
Business Overview
West Pharmaceutical Services is a healthcare company. It manufactures and sells medical packaging and medical components. It is also a contract manufacturer for other MedTech companies. The stock has a market cap of $15 billion.
Products include automatic medication delivery systems and medicine injection solutions, among others.
Sales are primarily generated in the US and the MENA region. This is not a big surprise, as healthcare expenditures on a per-capita basis are among the highest in the US and Europe. High-Value Product Components make up more than half of the company’s sales, while delivery devices contribute a much smaller portion of West Pharmaceutical’s revenue.
West Pharmaceutical Services reported its fourth-quarter and full-year 2024 financial results, with a 2.3% increase in net sales to $748.8 million for the quarter and a slight decline in adjusted diluted earnings per share (EPS) to $1.82. The company anticipates 2025 net sales between $2.875 billion and $2.905 billion, with adjusted diluted EPS ranging from $6.00 to $6.20. CEO Eric M. Green highlighted strong revenue and profit performance, emphasizing the positive impact of the company’s proprietary products and continued momentum in high-value products (HVP) for biologics and generics.
In the Proprietary Products segment, fourth-quarter net sales rose to $613.9 million, with a 4.5% organic growth rate driven by demand for self-injection devices. The Biologics and Pharma units saw single-digit growth, while the Generics unit experienced a mid-single-digit decline. For the full year 2024, segment sales declined by 2.6% to $2.335 billion, with HVP contributing 73% of total sales. The Contract-Manufactured Products segment saw a 2.5% decline in fourth-quarter net sales to $134.9 million, driven by lower sales of healthcare diagnostic devices, partially offset by growth in self-injection devices for obesity and diabetes.
Looking ahead to 2025, West Pharmaceutical expects organic net sales growth of 2% to 3% despite a projected $75 million foreign currency headwind. Adjusted diluted EPS guidance also accounts for an estimated $0.23 currency impact, with a full-year tax rate assumption of 22%. The company plans $275 million in capital expenditures to expand HVP production capacity and contract manufacturing investments.
Source: Investor Presentation
Growth Prospects
Healthcare stocks will benefit from ongoing macro trends such as an aging population and increasing numbers of new therapies that seek to treat all kinds of ailments. As a result, West Pharmaceutical Services will likely continue to see ongoing growth from its core businesses, manufacturing, and parts production.
West Pharmaceutical grew its earnings-per-share at an attractive pace of 12% annually between 2009 and 2019. It projects a long-term organic sales growth rate of 6% to 8%. Industry tailwinds, such as rising healthcare spending, will help West Pharmaceutical achieve sizeable revenue growth in the coming years.
Revenue growth will be one source of higher earnings, but a more favorable product mix will also positively impact West Pharmaceutical’s earnings growth. The company seeks to increase its revenues in the Proprietary Products segment, which has significantly higher margins than the Contract-Manufactured Products business.
A recently announced buyback program could also help the company grow its earnings per share. We forecast WST to generate 9% annual earnings per share growth over the next five years.
Source: Investor Presentation
Competitive Advantages & Recession Performance
West Pharmaceutical Services is not among the largest healthcare companies in the world. However, its main competitors are not companies such as Johnson & Johnson (JNJ) but other parts producers and contract manufacturers.
West Pharmaceutical Services has manufacturing facilities in various countries around the globe. This competitive advantage allows the company to supply directly to the markets where its products are needed while saving on transportation costs.
It also holds several hundred patents that were rewarded over the last couple of years alone, which is the result of its investments in R&D for proprietary products. In that regard, West Pharmaceutical Services’ investments could pay off in the long run through an above-average growth rate and a well-protected product portfolio against potential new market entrants.
Healthcare is a recession-resilient industry, as demand for medication and treatments does not depend highly on the strength of the economy. During the Great Recession, West Pharmaceutical Services’ earnings-per-share declined by less than 15% peak-to-trough.
This is an attractive performance, both on an absolute basis as well as relative to the big profit declines that were experienced by many other companies with more vulnerable businesses.
WST’s performance during the Great Recession looked like this:
- 2008 earnings-per-share: $1.19
- 2009 earnings-per-share: $1.06 (11% decrease)
- 2010 earnings-per-share: $1.05 (0.9% decrease)
- 2011 earnings-per-share: $1.17 (11% increase)
The company’s resilience during economic downturns makes West Pharmaceutical Services an attractive choice for risk-averse investors, at least on a fundamental basis.
Valuation & Expected Returns
WST has generated excellent returns for shareholders. In the past five years, WST stock produced annualized returns above 30%. This was mostly driven by strong earnings growth and expansion of the P/E multiple in that time frame.
West Pharmaceutical Services currently trades for ~35 times 2025’s expected earnings-per-share of $6.10. That is quite a high valuation, both in absolute terms and relative to how the company was valued in the past, looking back a decade and more.
We believe that shares would be fairly valued at 25 times EPS. As a result, we view the stock as significantly overvalued, even when factoring in the forecasted earnings-per-share growth.
A declining P/E multiple from 35 to 25 would reduce annual returns by more than 6% per year over the next five years.
With a very low dividend yield of just 0.4%, West Pharmaceutical Services is expected to generate annual returns of about 2% in the coming five years.
This shows the potential danger of buying stocks with elevated valuation multiples.
Final Thoughts
West Pharmaceutical Services is a strong company on a fundamental basis. Its business is recession-resistant, it benefits from macro growth tailwinds, and its longer-term revenue and earnings growth potential are compelling.
However, the stock’s valuation is very high, and we believe that shares are substantially overvalued at current levels. The very high share price also explains West Pharmaceutical Services’ low dividend yield. Despite the fact that the company is a Dividend Aristocrat, we rate the stock a hold at current prices.
If you are interested in finding high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:
- The Dividend Achievers List: a group of stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings List: considered to be the best-of-the-best among dividend growth stocks, the Dividend Kings are a group of exceptional dividend stocks with 50+ years of consecutive dividend increases.
- The Blue Chip Stocks List: contains stocks on either the Dividend Achievers, Dividend Aristocrats, or Dividend Kings list.
- The Monthly Dividend Stocks List: contains stocks that pay dividends each month, for 12 payments per year.
- The High Dividend Stocks List: high dividend stocks are suited for investors that need income now (as opposed to growth later) by listing stocks with 5%+ dividend yields.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: