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I last reviewed West Pharmaceutical (WST) in this July 25, 2025 post at which time I stated that the company's recovery appeared to 'be on track'.
I concluded that very recent share price behavior suggested investors were warming up to WST. With shares trading hands at ~$279 and ~$280 being a what I deemed to be a fair value, I opted not to increase my exposure.
In hindsight, I should have increased my WST exposure when the share price fell to ~$187.50 in early April 2025. I, however, deployed some of my liquidity toward the purchase of shares in other companies.
Following the October 23, 2025 Q3 and YTD2025 earnings release, the October 23, 2025 closing share price is ~$307.25. I now take this opportunity to revisit WST's valuation.
Business Overview
Refer to the company's website and the FY2024 Form 10-K and Q3 2025 Form 10-Q.
Financials
Q3 and YTD2025 Results
In addition to the SEC Filings, I recommend reviewing the Q3 2025 Earnings Presentation.
I provide the Q3 2024 and 2025 from the Q3 earnings presentation to show the extent to which WST has turned around its performance from a difficult 2024.
Conventional And Modified Free Cash Flow (FCF) Calculations (FY2019 - FY2024 and YTD2025)
FCF is a non-GAAP measure, and therefore, the manner in which it is calculated is inconsistent. Many investors deduct CAPEX from OCF to arrive at FCF. In my How Stock Based Compensation Distorts Free Cash Flow post, I explain why I now also deduct stock based compensation (SBC) that is found in the Consolidated Statements of Cash Flows to determine FCF.
The following table reflects WST's FCF without/with the deduction of SBC.
WST's CAPEX/Sales ratio was ~7%, ~8%, ~9%, ~10%, ~12.3%, and ~13% of annual revenue in FY2019 - FY2024. This trend is because WST has been investing heavily in recent years to expand its manufacturing facilities and upgrade equipment to meet rising global demand for proprietary, high-margin drug containment and delivery components. The expansion particularly supports the fast-growing biologics and GLP-1 (glucagon-like peptide-1) markets, which require advanced, high-quality packaging solutions. Examples of these expansion initiatives include the buildout of new manufacturing plants and the addition of state-of-the-art production lines in the U.S. and Europe.
On the Q3 2025 earnings call, management states:
As volumes increase, we will need to layer in additional capital, but we do feel comfortable that we're going to be back to the 6% - 8% of sales corridor for CAPEX, but heavily weighted towards the high-value product components part of our business.
FY2025 Guidance
The following reflects WST's prior and current FY2025 guidance.
WST's current FY2025 guidance assumes flat other income and expense, a 21% tax rate in Q4 and 72.6 million diluted shares outstanding. This is the weighted average number of diluted shares outstanding in Q3 2025.
The company continues to anticipate $15 - $20 million in tariff-related costs in FY2025 with the expectation that more than half of those costs will be mitigated in 2025. In 2026, WST now expects to fully mitigate the impact based on the current tariff landscape.
The updated full year guidance translates to Q4 revenue of $0.79B -$0.8B.
In Q4 2025, WST had a $25 million incentive fee which is not expected to recur in Q4 2025. This reduces expected Q4 organic growth by roughly 360 basis points.
I provide the following prior guidance for comparison.
WST's FY2025 guidance when it released its FY2024 results in February 2025 was:
- Consolidated Net Sales: $2.875B - $2.905B
- Adjusted diluted EPS: $6.00 - $6.20
Preliminary FY2026 Guidance
Management is of the opinion that destocking is largely complete and demand will continue to improve for its key growth drivers. End markets, however, remain dynamic so a range of outcomes is possible.
WST's HPV components business will lead the way given the multiyear growth drivers of GLP-1s and HVP upgrades.
WST was previously a major contract manufacturer for continuous glucose monitoring (CGM) devices, supplying large medtech clients in that market. It, however, exited its main CGM contracts in early 2025 due to profitability concerns. WST had produced components and assembled systems for two major CGM customers but both began shifting production in-house after WST decided not to continue under its financial thresholds.
The remaining CGM contract, however, will continue to run at full capacity until exiting in mid-2026. This will be a ~$40 million headwind for the second half of FY2026.
The company is actively working on refilling that CGM space with higher-margin business and is in the process of repurposing manufacturing capacity from those discontinued CGM programs toward higher-margin segments such as auto-injectors and GLP‑1 drug delivery devices
WST is currently building out drug handling in its Dublin, Ireland facility. This is expected to add roughly $20 million in revenue in FY2026 which will help offset the CGM contract.
Risk Assessment
No rating agency rates WST's debt. WST's cash flow and balance sheet metrics, however, reflect a prudent use of debt.
At September 30, 2025, the borrowing capacity available under WST's $0.5B multi-currency revolving credit facility, including outstanding letters of credit of $2.3 million, was $497.7 million.
The debt agreements contain customary covenants, none of which management considers restrictive to business operations. At September 30, 2025, WST was in compliance with all debt covenants.
Dividend and Dividend Yield
Looking at WST's dividend history, we see that a WST investment is typically not made for dividend income. The majority of any total long-term investment return is likely to continue to be in the form of capital appreciation.
WST's weighted average shares outstanding in FY2013 and Q3 2025 was (in millions of shares) 71.4 and 72.6.
In FY2022 - FY2024, WST repurchased $202.8, $438.3, and $560.9 million of its outstanding shares. In the first 9 months of FY2025, it repurchased $134 million with nothing repurchased in Q3 2025.
The Board approved a share repurchase program in December 2024 under which WST was able to repurchase up to 550,000 shares of common stock on the open market or in privately-negotiated transactions. Completion of this program was during April 2025. I anticipate that WST's Board will approve another share repurchase program within the next few months.
Stock Splits
WST initiated a 2-for-1 stock split in September 2013.
Valuation
In the first 9 months of FY2025, WST generated $4.97 and $5.25 of diluted EPS and adjusted diluted EPS. Management has revised its FY2025 adjusted EPS outlook to $7.06 - $7.11 ($7.085 mid-point) from $6.65 - $6.85 ($6.75 mid-point).
Using the current ~$307.25 share price, I estimate a forward adjusted diluted PE of ~43.4 ($307.25/$7.085).
Using the currently available broker estimates, WST’s forward-adjusted diluted PE levels are:
- FY2025 – 15 brokers – a forward-adjusted diluted PE of ~44.5 using a mean of $6.90 and low/high of $6.74 – $7.13.
- FY2026 – 15 brokers – a forward-adjusted diluted PE of ~40.7 using a mean of $7.55 and low/high of $6.77 – $8.21.
- FY2027 – 11 brokers – a forward-adjusted diluted PE of ~35.8 using a mean of $8.59 and low/high of $8.04 – $9.36.
Revisions to these estimates are likely over the coming days given the recent earnings release.
Management does not provide FCF guidance. We can, however, estimate FY2025 FCF. In the first 3 quarters of FY2025, WST reports $0.2937B and $0.2766B of FCF (conventional and modified calculation methods).
If it generates ~$0.6716B of OCF for the year ($0.5037B in the first 9 months) and we deduct FY2025 CAPEX guidance of ~$0.275B, we get ~$0.3966B of FCF (conventional calculation method).
In the first 9 months of FY2025, SBC was $17.1 million. Erring on the side of caution, I estimate SBC of ~$23 million for FY2025. Deduct this and we get ~$0.3943B of FCF (modified calculation method).
If the diluted weighted average shares outstanding for the year are 72.6 million, we get FCF/share values of ~$5.46 and ~$5.43. Divide the current ~$307.25 share price by these values and the P/FCF is ~56.3 and ~56.6. These are well in excess of the ~43.4 FY2025 forward-adjusted diluted PE estimate. This is not surprising given that WST's FCF conversion ratio has been considerably under 100% the last few years.
For comparison, this is my valuation commentary in my prior post.
In the first half of FY2025, WST generated $3.05 and $3.29 of diluted EPS and adjusted diluted EPS. Management has revised its FY2025 adjusted EPS outlook to $6.65 - $6.85 from $6.15 - $6.35 ($6.25 mi-point).
Using the current ~$279 closing share price on July 24, I estimate an adjusted diluted PE of ~41.3 ($279/$6.75).
Using the currently available broker estimates, WST’s forward-adjusted diluted PE levels are:
- FY2025 – 14 brokers – a forward-adjusted diluted PE of ~43.5 using a mean of $6.41 and low/high of $6.24 – $6.81.
- FY2026 – 13 brokers – a forward-adjusted diluted PE of ~38.5 using a mean of $7.25 and low/high of $6.75 – $7.67.
- FY2027 – 7 brokers – a forward-adjusted diluted PE of ~33.3 using a mean of $8.39 and low/high of $7.41 – $9.36.
I envision adjustments to these estimates over the coming days.
Management does not provide FCF guidance. We can, however, estimate FY2025 FCF. In the first half of FY2025, WST generated $0.16B and $0.1513B of FCF calculated using the conventional and modified calculation methods.
If it generates ~$0.62B of OCF for the year ($0.3065B in the first half) and we deduct FY2025 CAPEX guidance of ~$0.275B, we get ~$0.345B of FCF (conventional calculation method).
In the first half of the year, SBC was $8.7 million. Erring on the side of caution, we can estimate SBC of ~$18 million for FY2025. Deduct this and we get ~$0.327B of FCF (modified calculation method).
If the diluted weighted average shares outstanding for the year are 72.8 million, we get FCF/share values of ~$4.74 and ~$4.50. Divide the current ~$279 share price by these values and the P/FCF is ~59 and ~62. These are well in excess of the FY2025 forward-adjusted diluted PE estimate (~41.3 and ~43.5). This is not surprising given that WST's FCF conversion ratio has been considerably under 100% the last few years.
Final Thoughts
When I completed my 2024 Mid Year Portfolio Review, WST was my 20th largest holding. It was my 18th largest holding when I completed my 2024 Year End Portfolio Review and had fallen to my 30th largest holding when I completed my 2025 Mid-Year Portfolio Review. Following the recent share price surge, it is perhaps my 25th largest holding; I currently hold 500 shares in a 'Core' account within the FFJ Portfolio.
The time to invest in great companies is when they temporarily fall out of favor. Unfortunately, WST's recent share price behavior suggests investors are warming up to it.
Based on my assessment, WST is fairly valued in the ~$295 - ~$305 range. I, therefore, have no immediate intention of adding to my exposure.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long WST.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
