Dividend Aristocrats In Focus: West Pharmaceutical Services

With a sales growth rate forecast in the 6%-8% range, earnings-per-share could reasonably grow by 8%-10% a year in the long run, as margin tailwinds will likely lead to a somewhat improved bottom-line growth rate relative to its sales growth. We will therefore calculate our total return forecast using an estimated earnings-per-share growth rate of 9% annually.

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 rather other parts producers and contract manufacturers. Among those, West Pharmaceutical Services is the smallest by far. Peers such as Cooper Companies (COOP) or Alcon (ALC) are of a similar size.

West Pharmaceutical Services has a wide range of manufacturing facilities in different countries around the globe. This competitive advantage allows the company to supply to the markets where its products are needed directly, while saving on transportation costs. The company also holds more than 300 patents that were rewarded during the last two years alone, which is the result of its investments in R&D when it comes to the company’s proprietary products offerings.

In that regard, West Pharmaceutical Services’ investments could pay off in the long run, through an above-average growth rate and a product portfolio that is well-protected 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. That is why West Pharmaceutical Services also did not feel a lot of pressure during the Great Recession of 2008-2009. During the Great Recession, West Pharmaceutical Services’ earnings-per-share declined by just 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.

During the coronavirus pandemic of 2020, West Pharmaceutical Services again performed well. During 2020, the company managed to grow its earnings-per-share, based on current estimates for the fourth quarter (Q4 results have not been released so far). This, once again, showcases the strong resilience of the company’s business model during times when the economy is in a recession. Resilience during economic downturns makes West Pharmaceutical Services an attractive choice for risk-averse investors, at least on a fundamental basis.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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