West Pharmaceutical Services Inc (WST)

Conclusion

West Pharmaceutical Services designs and manufactures containment and delivery systems for injectable drugs, including stoppers, seals, syringe and cartridge components and self-injection devices, sold to drug companies across the Americas, Europe and Asia Pacific. At a price of 413.09 USD on 2026-11-09, the market capitalisation is 28.8 billion USD.

The verdict is overvalued. The fair value band runs from 183.21 to 274.81 USD with a midpoint of 229.01 USD, giving a margin of safety of -44.6% at the current price. The discounted cash flow gives 105.19 USD per share, and the fair value from historical multiples is 352.83 USD. Today's P/E of 45.0x is 5.2% above its ten-year median of 42.8x, and EV/EBITDA of 29.6x is 17.2% above its median of 25.3x. The reverse DCF implies growth of 25.8% a year, while revenue grew 7.4% a year over five years and free cash flow per share grew 10.4%.

What holds the case up is a net cash position, with net debt to EBITDA of -0.16, interest coverage of 57.6x, and a return on invested capital of 22.4% against a WACC of 10.5%. What would break it is slowing growth, with revenue compounding at only 2.1% over three years and EPS falling at -4.2% a year over the same period, together with a price to book of 9.7x against a ten-year median of 6.9x.

Financial health

Financial strength is green, held up by a net cash position, strong liquidity and very high interest coverage. Net debt to EBITDA is -0.16, which means net cash, the current ratio is 2.82, the quick ratio is 1.88 and debt to equity is 0.10. Interest coverage stands at 57.6x. The Altman Z-score is 19.28, well inside the safe zone. Insolvency risk: low, about 0.03% by the estimate of the Ohlson model over one to two years. Nothing in the balance sheet points to near-term strain, although the analysis has no debt maturity schedule to test refinancing needs.

Earnings quality

Earnings quality is green, supported by a Piotroski score of 7 out of 9, a Beneish M-score of -2.78 (unlikely to be manipulated) and eight beats in eight quarters, with an average surprise of 16.2%. The share count fell 0.8% a year over five years, so buybacks are more than offsetting dilution. Free cash flow conversion is 71.0% on a trailing basis and 68.3% over five years, a neutral reading. The accrual ratio is -0.066, meaning cash generation exceeds reported profit. Free cash flow after stock-based compensation is 424.9 million USD, with stock compensation at 0.8% of revenue. Analysts raised the current-year estimate by 5.6% over 90 days, with 12 upward revisions and none downward in the last 30 days, and the next-year estimate by 4.3%.

Profitability

Profitability is green. Return on invested capital is 22.4% against a WACC of 10.5%, a given gap of 11.9% in the company's favour. Margins sit above their ten-year medians: gross margin is 37.6% against 35.2%, operating margin 23.0% against 19.8%, and net margin 18.8% against 16.1%. Return on equity is 21.5%. The DuPont split shows it is driven by margins and asset turnover of 0.72 rather than leverage, since the equity multiplier is only 1.34 at the 2025 year end. That makes the return on equity a sound signal, not an artefact of borrowing.

Growth

Growth is green on the scorecard, but the recent trend is weaker than the long-run record. Revenue compounded at 2.1% over three years, 7.4% over five years and 8.2% over ten. EPS fell at -4.2% a year over three years, rose 8.3% over five and 18.0% over ten. Free cash flow per share grew 3.6%, 10.4% and 19.4% over the same spans. Revenue increased in nine of the last ten years. The three-year figures show a clear slowdown, which matters because the price already assumes much faster growth than the recent past delivered.

Valuation

Valuation is red, as the price sits far above the fair value band. The P/E of 45.0x is 5.2% above its ten-year median, EV/EBITDA of 29.6x is 17.2% above, price to free cash flow of 63.5x is 16.3% above, price to sales of 8.5x is 34.7% above and price to book of 9.7x is 40.5% above its median of 6.9x. The DCF gives 105.19 USD per share, using a discount rate of 10.6%, first-stage growth of 8.2% and terminal growth of 2.5%. The fair value is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth, and it is not a price target. The reverse DCF implies 25.8% growth. The dividend yield is 0.2%, with a payout of 13.9% of free cash flow.

Risks

The main risk is the valuation itself. The reverse DCF requires 25.8% growth, far above the 7.4% five-year revenue growth, so any slowdown toward the three-year pace of 2.1% would leave the price resting on expectations the record does not support. Falling EPS over three years (-4.2% a year) is a second weak number: if earnings stay under pressure, the premium multiples have less support. The price to book premium of 40.5% leaves little margin for error if returns on equity move down from 21.5%. The analysis is missing a debt maturity schedule and revenue by segment, so refinancing exposure and the performance of individual businesses cannot be assessed. The DCF is built on fixed assumptions, so its result should be read as an order of magnitude, not a precise value.