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Viatris Has Been Bearish for One Reason — But Is Still an Intriguing Value Play

One earnings story that caught my eye was this pharmaceutical name.
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A funny thing happened on our Colorado vacation last week.

As we were driving up in the mountains, I was recounting the story of the white grizzly bear my daughter and I saw (or thought we saw given that there is no photographic proof) in the Elkhorn Mountains, a mile or so from Crow Creek Falls in Montana a few years ago. Mid-story, a black bear crossed over the road right in front of us. This time, at least, there were five witnesses.

Seemed like a fairly good week to be out of pocket.

The one earnings story that caught my eye was that of pharmaceutical name Viatris (VTRS) , which reported second-quarter results. The company, formed in late 2020 via the merger of Mylan and Upjohn, exceeded estimates on both the top (revenue of $3.92 billion versus $3.86 billion consensus) and bottom lines (earnings per share of 75 cents versus 71 cent consensus).

Viatris has not performed well since it started trading in November 2020 as the shares are down about 25% since then on a total-return basis. The company's 12-cent quarterly dividend equates to a 4.3% yield, but that's been of little comfort recently, especially in an environment where you can earn more than 5% in a money market fund.

The most interesting thing about Viatris is its valuation, as the shares currently trade at less than 4x 2023, 2024 and 2025 consensus earnings estimates. However, those low valuations come with a price, which is one reason that the stock trades at these levels: debt. As of the latest quarter, the company had $18.6 billion in debt, and $629 million in cash. The company has paid down $727 million in debt year-to-date, but clearly has more work to do.

Part of the debt paydown has been via divestitures, and Viatris has plans to continue selling off businesses. In addition, the company has earmarked about 50% of cashflow to be used for dividend payments and share buybacks.

The shares are up just 2% year-to-date, but have been on the upswing since late May.

At the time of publication, Heller was long VTRS.