Entering text into the input field will update the search result below

3 Reasons Viatris Is The Ultimate High-Yield Buffett-Style 'Fat Pitch'

Oct. 04, 2021 7:45 AM ETViatris Inc. (VTRS) Stock193 Comments


  • September saw the market fall 5% and the Nasdaq 6%. We're now officially in a pullback.
  • The debt ceiling showdown is the main reason most analysts expect a 10% to 20% correction in the next three weeks.
  • Viatris, created by the merger of Mylan and Pfizer's Upjohn, is now a much stronger and better-managed company than Mylan ever was.
  • VTRS' recession-resistant business model is expected to drive 3.6% long-term growth, but the 3.6 PE is pricing in -9.8% CAGR growth according to the Graham/Dodd fair value formula. VTRS is potentially 58% undervalued.
  • Analysts expect VTRS to potentially deliver 42%, 183%, and 250% total returns over the next one, two, and five years, respectively, about 7x better than the S&P 500. VTRS is the ultimate high-yield, anti-bubble, Buffett-style "fat pitch" on Wall Street today making it a potentially excellent investment idea for anyone comfortable with the risk profile.
  • This idea was discussed in more depth with members of my private investing community, The Dividend Kings. Learn More »

Money Pile $100 dollar bills

Kativ/E+ via Getty Images

September lived up to its reputation as the worst month for stocks. The S&P fell almost 5% and the Nasdaq even more.

September 2021 a bad month for stocks

However, it's important to remember that so far, as far as the entire market is concerned, this


Dividend Kings helps you determine the best safe dividend stocks to buy via our Automated Investment Decision Tool, Research Terminal, Phoenix Watchlist, Company Screener, and Daily Blue-Chip Deal Videos.

Membership also includes

  • Access to our five model portfolios
  • Daily Phoenix Portfolio Buys
  • 50 exclusive articles per month
  • 50% discount to iREIT (our REIT focused sister service)
  • real-time chatroom support
  • exclusive daily updates to all my retirement portfolio trades
  • numerous valuable investing tools

Click here for a two-week free trial so we can help you achieve better long-term total returns and your financial dreams.

This article was written by

Dividend Sensei profile picture

Dividend Sensei (Adam Galas) is an Army veteran and stock analyst with 20+ years of market experience.

He is a founding author of the investing group The Dividend Kings which focuses on helping investors safeguard and grow their money in all market conditions through the highest-quality dividend investments. Dividend Sensei and the team of analysts (Brad Thomas, Justin Law, Nicholas Ward, Chuck Carnevale, and Sebastian Wolf) help members invest more intelligently in dividend stocks. Features include: 13 model portfolios, buy ideas, company research reports, and a thriving chat community for readers looking to learn how to invest more intelligently in dividend stocks. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of VTRS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Dividend Kings owns VTRS in our portfolios.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (193)

Sensei nothing I can find from you on Viatris since this article. Are you still bullish?
@Satoriman come on man really? No one is bullish on VTRS there are only bag holders and short sellers.
ndardick profile picture
@Randol33 I beg to differ. I have not lost confidence yet. At least not until I see how the stock price reacts to the sale to Biocon.
Doesn't the Graham Dodd math argument here begin with the assumption that it's an unlevered company, that is, it pays out all as dividends? And yet, obviously it is a very leveraged company. Is the math here really correct if it is assuming away the need to keep paying down debt? Put another way, although the article later discusses the debt, does the concept of why it is a fat pitch based on math that ignores the debt?
ndardick profile picture
@adambcohen Go ahead and talk yourself out of a great GARP/VALUE/GROWTH choice because of your defective assumption regarding debt that VTRS has proven to be manageable. Did you manage to avoid investing in AMZN, FB, NFLX, GOOG and NVDA because they had debt? Debt is simply one component of any mathematical analysis in which you discount future cash flows to present value.
@adambcohen it is a legitimate question to ask, however it has been addressed many times in the comments sections of recent Viatris SA articles. If you are interested in investing into VTRS, I would greatly recommend perusing those articles/comments and then if there are still remaining unaddressed questions/concerns, by any means bring those specific concerns up for further discussions.
@ndardick I own the stock. I am asking a formula question, about the statement: "That's because an 8.5 multiple represents an 11.8% earnings yield and if such a company pays out all of its earnings as dividends, investors will earn 11.8% over time, about 9.8% adjusted for long-term expected inflation." Clearly, VTRS dos not pay out "all of its earnings as dividends" when we know it is paying down debt. Hence, the statement maybe does not match the math that follows. This is a question to the author - not a debate over whether it can pay its debt (which is well covered and debated and I will accept as true).
thirdcamper profile picture
Today's earnings report, and 7% market jump, proved Sensei completely correct.
@thirdcamper Until BBB adds in prescription benefits that could wipe out the gains. This and other pharmaceutical stocks are going to be driven by the edicts in BBB.
Great detailed analysis. I own it added to it awhile back
AngryBill profile picture
I have studied this company for months now... trying to gain insight. The value metrics are all too easy to decision on. What's needed is a better qualitative insight. The individual investor community is far too compelled by valuation metrics... but knowing this company very well, the main issue facing institutional investors is the degradation of the main branded business, and the allowance of 'FX' income to really justify revenue/ profitability. Ultimately this is a revenue depleting business - their main branded portfolio is taking it up the a$$... so is pretty much every other product they wil come up with.... in fact there is a good, realistic model that forecasts bankruptcy here, in light of companies such as Sun Pharma and Dr.Reddys of India, capable of highly technical bio similar and complex generics, at a FAR lower cost base. This is the reason of fear from institutions and its needs to be understood by the individual investor. This is perceived as a declining, and unsustainable business. Understand? I hope so. Because it gets better now... The main thing you are investing in here is the company infrastructure. The combination of Mylan and Pfizer has created an infrastructure of a top global drug company, with the value add of a generic. In other words, there is a generic platform/ marketing entity here, like no other. Yes, generic, complex generic, and bio-similar drugs have a short, short-short, profitability window. The competition WILL catch up, and will catch up fast. However, there will be many circumstances where Vistris enjoys a short-term moat, GLOBALLY until the others catch up. THIS is the advantage here. Short-term bursts of high profits. Viatris has THOUSANDS of opportunities under its belt and will decide on the right ones that meet their 'long tail' strategy for profitability. In addition, other companies, IE. the thousands of micro labs worldwide have an opportunity to distribute through Viatris. This has GOT to be a MASSIVE platform opportunity. Air B N B and Skip get all the cred for platforms, but here is the first global platform for labs to hook into a global empire. This is the key insight. Not current valuation. Not P/E. It is the belief in the model that will truly create something different in the drug industry. This combined with the social benefit of the company, especially concerning the developing world, I am comfortable with this investment win or 'lose'. I'm all in
ndardick profile picture
@AngryBill Thanks for your extended research and for sharing your positive conclusions regarding the VTRS platform.
@ndardick I've been watching VTRS for a while, and initiated a position this afternoon on the selloff. I bought more again as it continued to drop. There's speculation that the selloff was due to tax-loss selling, but who knows? The markets are at record highs, and VTRS is close to its 52-week low.
thirdcamper profile picture
Further analysis in the Motley Fool: www.fool.com/...

From the article:

The name Viatris might not be terribly familiar to biotech investors yet, but they'll likely know the names that make up its pedigree. It was formed last November via the $12 billion merger of the established medicines business of Pfizer's Upjohn unit and generic-drug maker Mylan.

While the expectation was that combining those two would give the overall business greater strength, the stock has lost more than 28% of its value in 2021. Investors should see that as an opportunity.

Wall Street forecasts Viatris' top line will remain relatively flat for the next couple of years. However, its bottom line is expected to rise almost 20% to $4.28 per share by 2025, while free cash flow per share is forecast to increase at a compound rate of 14% annually across that time frame.

The sluggish revenue forecast is due to the intense nature of competition in its branded products business, which represents more than 60% of its sales, though it recently won FDA approval for Semglee, an insulin drug for treating diabetes and the first interchangeable biosimilar in the U.S.

The real potential for Viatris will come as it pays down its significant debt, giving it more funds available to invest in research and development. Management expects to reduce annual operating expenses by over $1 billion by 2023 and will have repaid a quarter of the $26 billion debt it owed at the time of the merger.

The average age of the U.S. population keeps rising, and so do prescription drug prices -- a pair of trends that should keep growing the market for generics, even if those carry lower margins for their manufacturers. Research and Markets anticipates that the U.S. generic drug industry's sales will grow by 5.7% annually from $171.8 billion in 2020 revenue to $239.5 billion in 2026.

What makes Viatris a no-brainer here is that its stock is so deeply discounted. Shares go for less than 4 times estimated earnings and under 10 times free cash flow. This company is trading below the book value of the business. And its dividend yields 3.3% at current share prices.

Viatris looks like a stock that could reasonably grow to the $20 per share average price target Wall Street has set. That's a potential 51% gain over the next 12 months, and the stock could deliver even better returns in the years to come.
ndardick profile picture
The sellers of Viagra must surely know…
How fast the price of VTRS will grow.
The sellers of Xanax have sealed my fate…
When the stock price doubles, I’ll feel great.
So today I bought more November $13 calls…
No one can question whether I have b***s!
thirdcamper profile picture
@ndardick I'm hoping we don't both need Zoloft.
ndardick profile picture
I read what you wrote (about Zoloft).
First I choked, and then I coughed.
@Dividend Sensei The biggest risk to VTRS seems to be if medicare does bulk buying of drugs. i've never really got a handle on what the likelihood of that is.
thirdcamper profile picture
@GuyRien1 The proposed reforms would encourage generics and biosimilars as a way of reducing Medicaid and Medicare costs. In that scenario Viatris would presumably be a winner, because that is what they make, primarily. I'm not sure that will happen, though, because of Sinema and Manchin (both of whom get a lot of campaign cash from the pharma industry).

More likely to be adopted would be proposals preventing stalling on the process by which name-brand drugs become generics. And that too would directly benefit Viatris.
2Q they had 23B in debt and have paid a little over 1B of the 6.5B planned, so 5.5B more to go, which would end up with 17.5B. They said they won't buy back stock until debt is 2.5x ebitda, so if ebitda is 7B, then that is $17.5B in debt.
thirdcamper profile picture
@kenberthiaume Timetable for that being 2023, at which point they have said they will allocate more to a) greater R&D budget to develop new biosimilars, and b) buybacks. This is why, while I expect possible gains on VTRS in Nov. and Dec., I think the real gains will come for those willing to stick with it 2-3 years.
I think the price is low because of the lawsuits it is facing. According to CFRA, these include the national opioid crisis, generic price fixing, illegal market share allocation, and the pricing of the EpiPen. I wouldn't buy the stock without a careful analysis of its possible liability in relation to any funds that have been set aside. Opioid suits can cost $billions.
ndardick profile picture
@btmfisher In a recent healthcare conf, the CEO said that opioid and price fixing exposures are minimal and fully reserved against. I previously posted the actual quote from him.
thirdcamper profile picture
@btmfisher I think the lawsuits pose risks, as I stated below. Mostly they lower my confidence in some of the leaders; they probably are also a drag on certain institutional investors buying the stock, not so much from the lawsuits as from the substance (pension funds don't like to invest in companies they believe misled them, even if rebranded, esp. if the same leaders are still involved).

However, those lawsuits were known factors when the stock hit $18 initially, almost $5/share higher than now. None of the lawsuits brought it down. The real reason for the price falloff was the disappointment at certain aspects of an earnings report earlier this year. That may be righted in Nov. when they give Q3 earnings and likely revise their guidance for the rest of the year, and in Dec. when they announce outcome of strategic review and give forward guidance for next year. It's really mostly about the numbers.

Mylan had only 1% of US opioid sales. It was not a major player and billions won't result from any action on that front.
thirdcamper profile picture
@btmfisher Also, they settled the EpiPen matter with the DoJ, so that's over.
ndardick profile picture
VTRS just scheduled Q3 earnings for Monday, November 8, prior to the open. Makes November calls even more interesting.
Added some more on todays drop.
@Randol33 Same here... added 250 shares at $13.40 today.
Udith Fonseka profile picture
i agree with the article but i still cannot quite see how the management is"so" much better than Mylan's. Their talk is in the right direction but i thought the new management like President Raj Malik, Executive Chairmen Robert Coury plus David Bayles, Anil Amin, Bill Szablewski, Abhijit Barve, Drew Cuneo, Paul Campbell, Derek Glover, Andrew Enrietti, Tony Mauro, Brian Roman Jennifer Mauer ,Arun Narayan, Sean Ni, Lara Ramsburg, Sanjeev Sethi, Ramkumar Rayapueddy and the majority of the Directors are mostly from Mylan(and long serving). While Upjohn contributed three important senior executives inc CEO,CFO.
So about 85% of the Board and Senior Management is from Mylan with many of them long serving executives.
thirdcamper profile picture
@Udith Fonseka In your experience with companies, in decisions does everyone's voice count equally or is the CEO decisive? And who is tasked with making sure the numbers come in right? The CFO. So the most important Viatris execs are from Upjohn.

Mylan is not some forever black mark, in any event. Malik is a competent president - in charge of the basic operations of production, achieving the cost consolidations by shutting down some factories, etc.

We could go through all the former Upjohn people you omitted from your list, or provide analysis of the former Mylan people, or just call it all Viatris.

Arguments about personnel are secondary. What matters is the numbers. Follow a) the valuation, and b) the free cash flow, and you will see that Viatris is a free cash gusher going through a "trough year" that will come out the other end looking much better with the market recalibrating the VTRS price upward.
Udith Fonseka profile picture
@thirdcamper oh--i do agree to a great extent,two out of the top four executives including the most single important one, the CEO is from Upjohn as well as the Chairmen and that is very important and im buying more and more of the stock at current prices.
Yet to me the word '' management'' is a plural word.
But it is that the article and other presentations have emphasized that it is new management and especially how the CFO!! is from Upjohn and you would get the idea that it is a nearly a clean sweep--but when i did my due diligence, including going through approx 35 Linked-In profiles i found it was mostly Mylan people---yes, a nearly a clean sweep but the other way.

It seems that that leadership team of Mylan was kept whole/intact and was joined by a small number of key Upjohn/Pfizer who were parachuted in to provide a updated vision but also to monitor/invigilate the Mylan/Vitaris management team and give needed confidence to the market.
On another different note,Im not sure closing that Morgantown plant was a good idea. To me, this recent China tension, labour shortages,shipping shortages and Covid, have all added and helped to make the decision more questionable.
thirdcamper profile picture
@Udith Fonseka They still have 50 manufacturing sites, and the company operates (presumably mostly sales) in 165 countries and territories. They have to achieve cost savings from the merger somehow, and I don't feel I'm in a position to second-guess them in the choices they made. India is certainly cheaper. The five plants they closed or sold in Poland, Ireland, Morgantown, etc., will result in $250-300 million annual cost savings.

Obviously it's hard to see the US lose more good manufacturing jobs, though. They are keeping R&D at Morgantown. Maybe they could reboot production if it becomes advisable.
thirdcamper profile picture
More Motley Fool articles calling VTRS dirt cheap and best to buy now.


bluescorpion0 profile picture
@thirdcamper it's so cheap it keeps going down lol
@thirdcamper , from the article:

"One of the reasons investors likely aren't buying up the stock: Viatris is incurring losses. For three straight quarters, the company has reported a net loss and two of those times it was more than $900 million."

But I thought these were due to one-time costs of the trough year?

Long VTRS, and Free Cash Flow is my Northstar!
thirdcamper profile picture
@RedByrd Yes, indeed. Once the red turns to green, the proof will be in the pudding.
Purchased a chunk at $13.50 premarket. That gets my cost basis to $13.59. Have additional buy orders in place if we move down. VTRS now my largest single position. Also started to accumulate BMY. Still have lots of dry powder.
ndardick profile picture
@Gldgate Welcome to the club. VTRS is by far my largest single investment. I also own lots of November $14 calls and am short lots of January $20 puts that I sold naked but cash collateralized.
thirdcamper profile picture
@Gldgate That's an impressive cost average. I'm a little higher but under $14 as well.
ndardick profile picture
gurufocus.com valuation of VTRS is similar to my own:

"Valuation of between $23 to $35 shown below is based on 10-year median price-sales, price-book, and price-operating cash flow ratios, confirming a significant margin of safety."
ndardick profile picture
Excerpt from gurufocus.com article yesterday, giving reasons why VTRS is substantially undervalued and underappreciated:

Viatris Is Cheap
The recently formed generic pharmaceutical giant is misunderstood by the market
Author's AvatarPraveen Chawla
Oct 06, 2021

Viatris was formed in Nov 2020 by combining Mylan and Pfizer's off-patent business. It is the largest generic pharmaceutical company in the world.
Earnings power is being obscured by merger-related accounting and general negative market sentiment toward generic drug companies.
Regardless, Viatris generates healthy cash flows and has deep expertise in complex generics and a solid pipeline of biosimilars.
Article's Main Image
Viatris Inc. (VTRS, Financial) was formed by the combination of generic pharmaceutical company Mylan and Upjohn, Pfizer Inc.'s (PFE, Financial) off-patent segment. Though the Mylan part of the combination is the surviving the new entity, it is largely led by legacy Pfizer executives or newly hired talent. Viatris is anticipated to leverage the former Mylan infrastructure, consisting of about 55 manufacturing and research and development facilities that were recently acquired, including Matrix Laboratories and the generics business of Germany-based Merck KGaA (XTER:MRK, Financial).

The combined portfolio will consist of the mature Pfizer branded drugs (i.e., Lipitor, Celebrex, Viagra etc.) and Mylan's portfolio of generic, specialty and over-the-counter active ingredients and medicines. Unlike its generic peers, the company has made the most progress on the biosimilar front and has deep expertise in developing generic copies of complex drugs and dosage forms. The company has a global footprint and supply chain, with the ability to leverage innovation and scale in multiple regions.
Dryhopped2 profile picture
Considering your level of investment in other stocks, $6500 doesn't seem like much of a vote of confidence from you.
@Dryhopped2 based off what? If thats new capital that he would normally deploy elsewhere, then seems reasonable to me. If your basing it on his total account, seems illogical to liquidate other good positions just to make this one a larger percentage of his over all portfolio.
I think by YE 2023, they'll have 15B in outstanding debt, 7B in EBITDA and about $4-5 per share in earnings. I could see $30-$35.
ndardick profile picture
@kenberthiaume That's what I've been saying, and although there is an overwhelming majority of support on this post, the market likely won't react until the Q3 results due to be announced in November force analysts to raise their own price targets and raise guidance to match what management is expected to reveal.
Ventureshadow profile picture
Mylan seems the pharma most immune from fed gov't prosecution--because its CEO is Joe Manchin's daughter. I'm not invested in Mylan, but I recognize apparent conflict of interest when it hits me in the face. Regarding Viatris, I sold puts because it has gone only sideways for the past 18 months. Sure I might miss out on a sudden price jump but I can not predict when that might happen.
ndardick profile picture
@Ventureshadow Two things to consider:

1. MYL does not exist any more, and its former CEO Heather is no longer associated with its successor, VTRS.

2. Consider selling IN-THE-MONEY puts (with a strike price higher than its current market price) to attempt to capitalize on a potential pop when VTRS reports Q3 earnings in about 5 weeks.
Ventureshadow profile picture
@ndardick Hah. I saw Heather mentioned on Facebook a few days ago. Serves me right for taking Facebook at Facevalue.
Ventureshadow profile picture
@ndardick Thanks for the advice about put-selling. I believe such puts should have an expiry date at least 4 months away or the stock will be immediately put to me if the stock falls after Q3 earnings.
With a stock market value of about $ 16 billion and yearend debt around $ 22 billion the total economic value is about $ 38 billion versus management's expected 2021 EBITDA of some $ 6 billion. The value to EBITDA ratio is over 6 times; this is a private equity/LBO type priced stock, rather risky especially if interest rates go up. It's a little surprising that the last quarterly report did not have a cash flow statement (unfortunately not unusual) but also no balance sheet (rather unusual)(I wish the SEC would require the full 10K report to appear when the quarterly numbers are released), and it was hard to find a debt number in the 2020 annual report. A management that buries numbers doesn't inspire confidence. It certainly isn't worth a big proportion of anyone's portfolio.
ndardick profile picture
@rcray It is very refreshing to see arguments supported by mathematical computations. However, I do not believe that an EV/EBITDA ratio of 6 is high. In fact, it’s quite low. Would actually be higher if the stock were trading at a higher price that is warranted. Perhaps around 8x if the stock traded at $24, which is only 6x earnings, and an EV/EBITDA RATIO OF 8 FOR A GARP NAME IS VERY CHEAP, especially when under such circumstances the P/E ratio would be only 6x earnings and the debt/equity ratio would be under 1:1. And let’s not ignore the rapidly increasing cash flow, EBITDA and dividends according to recent management presentations at the Citi and BofA healthcare conferences. See SA transcripts of both for corroboration.
@ndardick deleveraging will drive the return, so not really a GARP name, which is why the multiple is in the low 6's. BHC, OGN and VTRS all in the same boat, with varying degrees of leverage. If EBITDA and Revenues stay flat, multiple likely to stay in the same place if interest rates stay low, but massive deleveraging and ultimately a higher dividend will create an above market return.
ndardick profile picture
@Dr. Pepper While your hypothesis might be theoretically correct, the reality that you seem to ignore is that management repeatedly states vociferously that this is a trough year for cash flow, which will improve significantly and immediately as one time merger and restructuring expenses abate. What makes VTRS A GARP STOCK is that cash flow and EBITDA will continue to rise as more biosimilars are approved. That is why management now confidently calls CASH FLOW ITS NORTH STAR. Deleveraging will certainly reduce interest expenses and increase cash flow and dividends and investor confidence, but that is not the primary driving force that will lead to VTRS DOUBLING IN A YEAR OR SO.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

About VTRS

SymbolLast Price% Chg
Market Cap
Yield (TTM)
Rev Growth (YoY)
Short Interest
Prev. Close
Compare to Peers

More on VTRS

Related Stocks

SymbolLast Price% Chg
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.