We came across a bullish thesis on Viatris Inc. (NASDAQ:VTRS) on ValueInvestorsClub by lightspot. In this article, we will summarize the bulls’ thesis on VTRS. The company’s shares were trading at $12.80 when this thesis was published, vs. the closing price of $11.48 on Feb 25.

A pharmaceutical sales rep holding a medicine pack, highlighting the drug candidate products.

VTRS is a global healthcare company operating in four segments: Developed Markets, Greater China, JANZ, and Emerging Markets. It offers prescription brand drugs, generic drugs, complex generic drugs, biosimilars, and active pharmaceutical ingredients (APIs).

The firm generates Free Cash Flow worth $2.3 billion and 50% of this is reinvested in assets that have a higher EBITDA margin. The bearish narrative on the stock is prompted by declining sales in its legacy brands like Viagra and Lipitor which represent only a third of its business. The expiry of patents on these products along with cheaper alternatives from Indian competitors have been the primary reason for a drop in sales but new license deals like those with Lexicon Pharmaceuticals and Idorsia Ltd should enable the topline to grow by 3%. With a 25-50 bps margin expansion and buybacks in the pipeline, EPS is expected to grow by a high single digit or a low double digit.

VTRS offers a 10.5% yield to its shareholders even after substantial deleveraging. With an expanding EBITDA, the FCF could increase to $2.3 billion, increasing the yield to ~12.5%. While the gross leverage remains below the target of 3x, a cheaply valued stock offers scope for further buybacks and an increase in leverage, which should further amplify the capital return to its shareholders.

Using a P/E multiple of 6x and a forecasted EPS of $3.28 in 2026, the fair value of the stock should be $20. A dividend of $1 can also be factored in due to an increase in cash flow that can be projected for the coming years. Based on the projected price in 2026, VTRS offers a ~40% IRR for investors over the next two years.

While we acknowledge the potential of VTRS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than VTRS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.