Viatris (VTRS) — a growth-oriented idea for 2022 — is a relatively new health care company. It was formed in November of 2020 in a merger between Mylan and Pfizer’s Upjohn business unit, explains Ben Reynolds, editor of Sure Dividend.

The company is currently trading with a $16 billion market cap. Viatris operates in 3 business segments: Brands, Complex Gx & Biosimilars, and Generics. The Brands segment markets the company’s well-known products, which include Viagra and Dymista.

The company reported Q3 2021 earnings on November 8th, 2021. Viatris’ management issued full fiscal 2021 guidance of (all numbers at the midpoint of guidance):

• $17.8 Billion in revenues
• $6.4 Billion in adjusted EBITDA
• $2.5 Billion in free cash flow

We expect adjusted earnings-per-share of $3.80 in full fiscal 2021. This means that Viatris is currently trading for very low valuation multiples of (all valuation numbers below use expected fiscal 2021 numbers):

• 0.9x Revenue
• 2.5x Adjusted EBITDA
• 6.4x Free cash flow
• 3.6x Adjusted earnings-per-share

Viatris looks incredibly cheap based on its valuation multiples. This may be due to unwarranted selling pressure that often occurs with spin-offs.

Another potential reason for the company’s modest valuation is likely its high level of debt. Viatris currently has $19.9 billion in long-term debt on its books. But the company is actively deleveraging; long-term debt was $22.4 billion at year end 2020.

The company’s management has proactively repaid $1.9 billion in long-term debt so far in fiscal 2021 and plans to repay $6.5 billion by 2023. The company’s aggressive deleveraging is made possible by its strong free cash flows.

Viatris looks very interesting from a total return perspective. The downward pressure on the security will likely be reduced as the company continues to deleverage. We believe Viatris will command a significantly higher price-to-earnings ratio over time.

A fair value price-to-earnings ratio of 7.0 is a conservative target. This implies 95% upside from current prices. And, Viatris pays a quarterly dividend of $0.11/share. This dividend is well covered by cash flows and gives shareholders a healthy 3.2% dividend yield at the current depressed share price.

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A Look Back at 2021's Top Performers

Last year, Ben Reynolds chose Home Depot (HD) as his Top Pick for 2021. The stock rose 56% over the past year. Here's his latest update on the company:

Through the first 9 months of fiscal 2021 (the most recent results for the company) versus 2020, revenue is up 15.6% and diluted earnings-per-share are up 32.7%. With strong business momentum, we see continued growth ahead for Home Depot.

While Home Depot should continue to post strong business results, the share price has grown even faster than the underlying business. As a result, we see Home Depot as somewhat overvalued currently. Our fair value target is $341 for this high quality dividend growth stock, while shares are currently trading at $415. This is why Home Depot isn't one of my top picks for 2022 as well.