Is Viatris Inc. a Contrarian Dividend Option for Your Portfolio?
Does Viatris Inc. make a good contrarian dividend play? It potentially could — for the right investor. Let's look at why you might want to invest.
Does kicking against market trends make you even more excited about investing? If so, you may want to consider drugmaker Viatris Inc. (NASDAQ: VTRS), which produces products that treat diabetes, immunology and oncology.
Viatris' portfolio has a wide variety of recognized brands and branded medicines, biosimilars and consumer products. Its products, such as EpiPen, Norvasc and Lipitor, drive results.
Q2 net sales totaled $4.1 billion, down 3% on an operational basis last year but performed better than expectations across segments. Otherwise, the company has hit some pretty significant bumps in the road since its inception.
Let's take a look at an overview of Viatris Inc. and the pros and cons of investing in the drugmaker. It may be a winner if you're a contrarian investment, but it may have to be the right play for the right dividend investor.
About Viatris Inc.
Viatris Inc. develops drugs to treat various therapeutic areas, including a huge range of noncommunicable and infectious diseases such as:
- Central nervous system agents
- Antivirals, antidiabetics, antifungals, and proton pump inhibitor areas
- Diagnostic clinics
- Educational seminars
- Digital tools
Its product brands include the following:
- Wixela Inhub
- EpiPen auto-injector
Viatris was formed in 2020 through the combination of Mylan and Upjohn, a partitioned-off division of Pfizer.
Pros and Cons of Investing in Viatris Inc.
Let's take a look at the pros and cons of investing in Viatris Inc. It's worthwhile to analyze the pros and cons as well as the fundamentals of the company in order to help you determine whether this investment will meet your needs.
First, let's examine the potential benefits of investing in Viatris Inc.:
- Free cash flow:Though the company has encountered flat revenue and earnings growth year, the company will likely continue to meet its financial obligations like debt repayments and dividend payments. Free cash flow generated $719 million of free in Q2 ($1.79 billion for the first half of the year), primarily driven by the company's GAAP net cash, including operating activities of $803 million in the quarter ($1.94 billion for the first half of the year) as well as the company's capital expenditures.
- Possible contrarian play: Contrarian investing means you challenge existing market trends to generate profits. Though investors have been dumping Viatris Inc., free cash flow, price-to-sales (P/S) ratio and other factors have stayed in positive territory.
- New product revenues: The company generated approximately $84 million in new product revenues in Q2 due to Semglee and should achieve approximately $600 million in new product revenues in 2022. Furthermore, its generics, which include diversified product forms like extended-release oral solids, injectables, transdermals and topicals ended up performing better than expectations due to the demand in North America.
- Dividends: At 4.99%, the company's dividend yield isn't anything to sneeze at. The company paid quarterly cash dividends of 12 cents per share on March 16, 2022, and June 16, 2022. The Company's Board of Directors declared a quarterly dividend of 12 cents on August 4, payable on September 16, 2022, to shareholders of record as of the close of business on August 24.
What are the cons of investing in the company? While it may seem overwhelmingly apparent that the company has more cons than pros, it might not necessarily be the case.
- Debt and lack of profit: The company isn't profitable and it has raked in over $20 billion in debt. The company will continue to plan down your debt. In addition, revenue, earnings and gross margin have shrunk, as has EBITDA. The company hasn't wasted time in pointing out that inflation has increased company costs and that competition continues to be stiff, particularly in the drug making industry. While both of these factors might be a universal truth, as they are with most companies, other warning signs might arise in this particular case.
- Plummeting stock: Its shares have gone on a rollercoaster ride, which seems to continue to affect investor confidence.
- Driving off its biosimilar product: Viatris announced that it would sell its biosimilars to Biocon Biologics for more than $3.3 billion. The goal was to benefit from a cash influx, allowing the company to focus on other areas. As of Dec. 31, Viatris had just $701.2 million in cash and cash equivalents on its books, which served to add an infusion of cash to the books. However, you could also argue that driving off this product could have been a major benefit to the company.
Learn more: Dividend Stocks to Hold Forever
Is Viatris Inc. a Possible Option for Your Portfolio?
Adding billions through the sale to Biocon Biologics definitely gives Viatris Inc. more maneuverability and growth opportunities in the future. However, big moves like that may not do much for investor sentiment, and the upshot is that the company suffers when investors sell off.
However, there may be good reasons to purchase Viatris Inc. Its competent brands and full-of-juice dividends may look tantalizing to a fully contrarian investor. However, it's worth considering the indicators that show how the company may perform in the future. For example, competitor Biohaven Pharmaceutical (NYSE: BHVN) has lower revenue but higher earnings than Viatris. Biohaven Pharmaceutical is also trading at a lower price-to-earnings ratio than Viatris, which means that Biohaven Pharmaceutical is the more affordable option between the two stocks.
Aside from its revenue issues, keep in mind that Viatris' gross margin continues to rot, going from a gross margin of 60% in 2020 versus a gross margin of 58.7% in 2021. This reason alone may result in a preference to permanently turn away from the stock.
Learn more: 6 Best Dividend Stocks of All Time
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