WST Stock Builds on GLP-1 Growth, Annex 1 and Margins in Focus

West Pharmaceutical Services, Inc. WST is well-positioned for growth, backed by the robust GLP-1 related demand and its expansion plans. However, pricing headwinds and tariff risks are concerning.

Shares of this Zacks Rank #2 (Buy) company have lost 32.5% so far this year compared with the industry's 0.6% decline. The S&P 500 Index has increased 2.8% in the same time frame.

West Pharmaceutical, with a market capitalization of $16 billion, is a leading global manufacturer, engaged in the design and production of technologically advanced, high-quality, integrated containment and delivery systems for injectable drugs and healthcare products. Its earnings are anticipated to improve 6.5% over the next five years. The company delivered a trailing four-quarter average earnings surprise of 7.81%.

Let’s delve deeper.

Key Catalysts

Strength in GLP-1 Related Demand: WST’s high-value product (HVP) components tied to GLP-1 therapies (notably used in obesity and diabetes treatments) are performing well. These accounted for about 7% of total revenues in the first quarter and continue to grow. Additionally, the GLP-1 auto-injector business within the Contract Manufacturing segment is ramping up, helping offset revenue loss from CGM contract exits. The company has also repurposed COVID-era infrastructure to support this GLP-1 growth, enhancing capital efficiency.

Expansion Opportunities: Annex 1-related projects (focused on sterile manufacturing compliance in Europe) are contributing meaningfully, with 340 active customer projects versus 280 last quarter. This initiative drives a favorable mix shift toward premium-margin HVP offerings, particularly in standard and generic pharma categories, which could materially impact growth and margins in the forthcoming quarters, even if its current revenue contribution is modest.

Operational Efficiency and Margin Management:Despite pricing pressure and a temporary supply constraint at one facility, WST is maintaining margins through improved operational efficiency, restructuring actions and SG&A control. Automation of SmartDose production (expected late 2025/early 2026) is a long-term lever to improve margins in delivery devices. WST has also reaffirmed its capital allocation toward margin-accretive investments and shareholder returns, further supporting EPS upside.

Factors Hurting the Stock

West Pharmaceutical Services is facing a combination of margin pressure, pricing headwinds, and tariff-related risks that could weigh on its performance through the remainder of 2025.

A significant contributor to margin pressure stems from a shift in product mix — specifically growth in lower-margin delivery devices like SmartDose and contract manufacturing projects, which are currently diluting the profitability achieved from high-value components such as FluroTec. While initiatives like automation are underway to improve cost efficiency, their benefits may not materialize until late 2025 or early 2026.

Adding to this, WST has flagged softer-than-expected pricing realization for the full year. Although price increases contributed meaningfully to first-quarter revenue growth, management now anticipates lighter pricing contributions going forward, reflecting both customer dynamics and competitive pressures.

On top of these internal challenges, the company faces external headwinds from evolving geopolitical risks. Newly imposed tariffs are projected to create a $20-$25 million cost burden over the next three quarters, with uncertainty around potential retaliatory actions. While WST is actively pursuing mitigation strategies, including possible cost pass-throughs, these are not yet reflected in its updated guidance. These factors, in unison, cause earnings volatility and constrain the company’s ability to fully leverage demand momentum.

West Pharmaceutical Services, Inc. Price

West Pharmaceutical Services, Inc. price | West Pharmaceutical Services, Inc. Quote

Estimates Trend

The company has been witnessing a stable estimate movement for 2025. In the past 30 days, the Zacks Consensus Estimate for earnings has remained unchanged at $6.28 per share, implying a decline of 7% from the prior-year level. The consensus mark for revenues is pegged at $2.97 billion, indicating a 2.5% increase from the 2024 level.

Key Picks

Some other top-ranked stocks from the same medical industry are Align Technology ALGN, Cardinal Health CAH and McKesson MCK.

Align Technology, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated growth rate of 11.2% for the next five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

ALGN’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 3.4%. ALGN’s shares have lost 10.3% so far this year.

Cardinal Health, carrying a Zacks Rank #2 at present, has an estimated growth rate of 10.9% for the next five years.

CAH’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 10.3%. Cardinal Health’s shares have risen 38.4% year to date.

McKesson, carrying a Zacks Rank of 2 at present, has an estimated earnings growth rate of 13.5% for the next five years. 

MCK’s earnings beat estimates in three of the trailing four quarters and missed once, delivering an average surprise of 3.93%. McKesson’s shares have gained 26% so far this year.

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This article originally published on Zacks Investment Research (zacks.com).

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