Issue #45: A pharmaceutical giant that you’ve never heard of and a fiber optic supplier set to gain from the new US infrastructure plan.

Here’s what we found this week:

Viatris is a major pharmaceutical company formed in 2020 by a merger between generic drug giant Mylan and the Upjohn division of Pfizer. Shares have slumped since a post-merger surge, but results are strong and the business model and financials are solid.

Clearfield provides fiber optic hardware to the broadband industry in the US, Canada, and Latin America. The Company has excellent fundamentals and an impressive growth rate, and could be a major beneficiary of the new US infrastructure bill.

Viatris Inc. ($VTRS)

$12.75 – Share price at time of writing



  • Viatris is a global pharmaceutical company formed in 2020 by a merger between Mylan, Inc and the Upjohn Division of Pfizer.
  • Viatris has a diverse and widely accepted product portfolio dominated by off-patent, biosimilar, and generic drugs.
  • These drugs have lower margins than patented drugs but revenue won’t be disrupted by a blockbuster drug going off-patent.
  • $VTRS reported excellent Q3 2021 results and raised annual guidance.

What they do:

Viatris was formed in November 2020 by the merger of two well-established pharmaceutical businesses, Mylan and the Upjohn division of Pfizer.

Upjohn was founded in 1886 and was acquired by Pfizer in 2015. Pfizer’s Upjohn business focused on off-patent legacy brands like Lipitor, Viagra, Celebrex, and Lyrica. These brands are still highly sought-after and widely preferred to generic brands.

Mylan was founded in 1961 and has been publicly traded since 1973. It is one of the largest manufacturers of generic drugs in the US.

Viatris is a global company delivering high-quality medicines to patients in over 165 countries and territories. Viatris divides its business into geographically defined reporting segments.

  • Developed Markets (US and EU) composed 59% of sales in the most recent quarter.
  • Greater China (China, Hong Kong, and Taiwan) produced 12.5% of sales.
  • Japan, Australia, and New Zealand produced 11.2% of sales.
  • Developing Markets yielded 17.5% of sales.

Viatris is a leading global provider of biosimilars: drugs that are identical in structure and function to patented drugs. Biosimilars are typically the leading competitors when prominent drugs go off-patent. Many patented drugs are complex and difficult to manufacture and only approved biosimilars are approved as the drugs come off-patent.

Viatris has an extremely diverse portfolio with products in 10 major therapeutic areas, including both communicable and non-communicable diseases. Viatris products are used to treat 9 of the WHO’s 10 listed leading causes of death. The Company is a leading provider of affordable HIV/AIDS medications worldwide, offering high-quality affordable antiretroviral (ARV) drugs in over 100 countries.

What we learned from social media patterns:

$VTRS gets minimal attention on social media. There are only 16 mentions in the last three months, most clustered around the Nov. 3 release of Q3 2021 results.

Pharmaceuticals are a very visible business that draws heavy interest from institutional and retail investors alike. Viatris is not receiving much of that attention, despite being a $15 billion company with a large portfolio of well-known drugs.

There are several reasons for this oversight. Viatris is a new company and many investors have never even heard of it. It doesn’t make high-profile blockbuster drugs. That keeps it out of the headlines and under the radar.

Notable comments from Reddit:

“VTRS could be the under-the-radar surprise and could double in 12 to 18 months, if management succeeds in smoothly integrating the Upjohn division of Pfizer with Mylan Labs and reducing the costs.”

– Pietro405

???? Signal: Chris Davis of Davis Advisors has purchased 43.7 million shares of $VTRS since the Company was formed.

Why $VTRS could be valuable:

The global pharmaceutical industry is expected to grow at a CAGR of 11.34% through 2028.

Pharmaceuticals are a highly resilient business, with demand largely unrelated to economic conditions. The combination of aging populations in developed economies and improving access to modern medical care in developing economies is set to drive long-term demand growth.

$VTRS has a forward dividend yield of 3.37%, another factor providing resilience in market downturns.

Viatris has a diverse product portfolio with a low level of dependence on any single product. The focus on off-patent, generic, and biosimilar drugs restricts margins but it means that the Company is not threatened by huge drops in revenue as blockbuster drugs come off patent. Which is a constant threat for companies that rely on patent protection.

$VTRS has a robust product pipeline, with 31 products in development, 14 of which are in the final submission and approval phase.

$VTRS had a breakout Q3 2021. Revenues were up 53% over the equivalent quarter a year ago, with improvements in all geographical segments. Net earnings were up 76% and free cash flow grew 98%. The company boosted full-year guidance for revenue, Adjusted EBITDA, and free cash flow.

$VTRS has beaten analyst earnings estimates for 3 consecutive quarters.

Viatris is very reasonably valued, trading at 3.48x forward earnings and 0.86% of sales. The share price jumped to $18 after the merger, but quickly retreated and has settled in a band between $13 and $16 for most of the last year. It’s currently trading at the low end of that band despite an exceptional most recent quarter.

12 analysts currently cover $VTRS, with a consensus rating between “Buy” and “Hold”. Analyst price targets range from a low of $15.00 (17.65% above the current price) to a high of $35 ($175% above the current price). The average analyst price target is $20.38, 60% above the current level.

What the risks are:

Viatris carries a significant amount of debt left over from the merger. Current free cash flow is more than sufficient to service this debt but any reduction in free cash flow could create a serious debt problem.

The integration of the Upjohn and Mylan businesses may encounter unexpected obstacles or be more difficult than expected.

The Viatris API business relies heavily on sales to Pfizer. If Pfizer is forced to reduce the production of drugs using Viatris APIs, Viatris results could be affected.

Pressure on governments to control drug prices could lead to regulations that restrict margins in some markets.

Viatris is a global company that operates under numerous regulatory regimes. Regulatory issues, foreign exchange fluctuations, or other risks inherent in global operations could affect results.

The pharmaceutical business is highly competitive. Significant R&D spending is required to maintain a competitive position and competitors may introduce products that are perceived as superior.

Bottom line: $VTRS is an under-the-radar player in a highly resilient business with high growth potential. The Company has a diverse and popular product range and is insulated from one of the biggest problems pharmaceutical companies face: the impact of a blockbuster drug going off patent.

Clearfield ($CLFD)

$65.98 – Share price at time of writing



  • Clearfield makes fiber protection, fiber management, and fiber delivery solutions for the broadband and cable delivery industries.
  • Clearfield products enable rapid, cost-effective installation of broadband services at any scale, from residential to enterprise.
  • Revenues and earnings have shown strong, consistent gains with little or no impact from the pandemic.
  • The $CLFD float is only 11.3 million shares, allowing rapid appreciation on even modest buying.

What they do:

Clearfield provides fiber management, fiber protection, and fiber delivery products. The products enable rapid, cost effective deployment of high-bandwidth service at any scale, including residential, business, enterprise, data center, utilities, and governments.

Clearfield is based in Minnesota and has manufacturing units in Minnesota and Mexico. The Company can produce for scheduled delivery and quick-turnaround customers.

Clearfield offers a suite of 8 products designed to provide a consistent and compatible system design from the point where a broadband distributor receives their signal to the points where their customers use it. The products are described in detail on page 2 of Clearfield’s most recent annual report.

Clearfield customers include broadband service providers, national telco carriers, community broadband services, Multiple System Operators, and companies that integrate fiber systems into their own products. Sales are primarily in the US, Canada, and Latin America.

What we learned from social media discussion:

$CLFD is not exactly a social media darling: the stock hasn’t been mentioned in the last three months.

In some ways that’s understandable: the nuts and bolts of broadband are not the sexiest business on the planet, even if almost everyone in the country uses them.

In some ways it’s also surprising. The stock has seen a 154% runup in 2021 and earned a number of prominent analyst recommendations, including a #1 rank from Zack’s and upgrades from other analysts. We’d expect that to generate at least some buzz, but the stock has remained under the radar.

???? Signal: Institutional positions are small because of the extremely small float, but 148 institutions hold shares, led by Blackrock and The Vanguard Group.

Why $CLFD could be valuable:

Clearfield sits at the intersection of two fast-growing industries. The telecom equipment market is expected to show a CAGR of 11.23% through 2025, while the broadband services market is expected to reach a CAGR of 9.1% through 2028.

5G networks require major investments in fiber infrastructure to connect 5G cell sites to their signal sources. This positions Clearfield as a beneficiary of 5G deployment.

The US Government’s Build Back Better infrastructure bill includes $1 billion in subsidies for community broadband services designed to extend broadband service to underserved areas. Community broadband is Clearfield’s single largest market segment, and the Company could be a major beneficiary of the bill.

Clearfield has shown solid revenue growth for the last five years, with little or no impact from the COVID pandemic.

Source: Profit Confidential

Earnings growth has consistently outpaced both the industry and the overall market.

Source: Yahoo Finance

Clearfield has no effective debt (cash on hand is 10x current debt) and delivers an operating margin of almost 18% and ROE of almost 22%.

$CLFD reported Q4 and annual results for FY2021 on November 5, 2021. Results were exceptional. Sales for the quarter were up 66% over Q4 2020 and earnings were up 141%. Sales for the fiscal year were up 51% with earnings up 177% over 2020.

Major investments in the low-cost manufacturing facility in Mexico will enable the Company to expand its footprint by a factor of three starting in Q2 of FY2022. Expanding production capacity to meet demand will support higher sales and earnings, and it is remarkable that $CLFD has supported this expansion without taking on significant debt.

Clearfield has beaten consensus analyst earnings estimates by wide margins for four consecutive quarters.

Source: Yahoo Finance

Clearfield’s valuation metrics are on the high side but not outrageous. The Company trades at 45.25x last year’s earnings and 6.52x last year's sales. These valuations are arguably supported by the company’s exceptionally consistent growth rate and growing markets.

$CLFD has an extremely low float. There are only 11.3 million shares trading freely and over 40% of those are held by institutions. That means that even a modest level of buying can move the stock very quickly.

What the risks are:

$CLFD relies on component purchases from single suppliers or limited groups of suppliers. That could result in manufacturing interruptions due to supplier problems or logistics interruptions.

Clearfield has a major manufacturing facility in Mexico, which enjoys a preferential import/export status from the Mexican government. That relationship could be disturbed by protectionist moves or trade disputes.

The US infrastructure development program is expected to bring a substantial boost to $CLFD. If this program fails to pass legislative action or is subsequently reversed, the Company’s results could be affected.

Clearfield is heavily focused on fiber optic infrastructure products. The emergence of competing and potentially preferred technologies could have a major impact on the Company’s future.

Bottom line: $CLFD is a financially strong, well-managed company showing exceptional growth rates and a strong position in expanding markets. It’s not a trendy stock and it’s not currently undervalued, but the combination of a strong market, consistent growth, strong fundamentals and low float may appeal to some investors.

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