Can a flu season sales boost lift Haleon shares post-earnings?

Since Haleon’s spinoff from GSK in July, the consumer healthcare company has underperformed, with inflation, debt and connections to a major pharmaceutical legal battle all dragging down its share price ahead of its H1 earnings announcement on Monday 19 September.

The Haleon [HLN.L] share price has disappointed since it was spun off from pharmaceutical giant GSK [GSK.L]. The company has suffered from growing inflation concerns, high debt and its entanglement in a costly legal battle in the past couple of months. Shareholders will hope its half-year results release on 19 September will help break its downward trend. 

GSK formed Haleon after demerging the consumer healthcare business from its core pharmaceutical operations. It was believed that the company, which owns brands such as Sensodyne and Panadol, would be valued more by investors as a separate entity. GSK went as far as to reject a £50bn bid from Unilever [ULVR] for the newly formed business. However, Haleon shares have underperformed since their market debut and, as of 15 September, have fallen 19.9% since it started trading on 18 July.

Haleon has not been the only consumer healthcare company to see its share price suffer over the past few months. Shares in French competitor Sanofi [SAN.PA] have fallen 18.3% since Haleon’s debut, while US giant Johnson & Johnson [JNJ] was down 4.6% over the same period.

Revenue forecast to rise despite increased costs

At the end of July, the company released a half-year trading update that shed some light on what is expected in its upcoming earnings report. Despite the challenges pushing the Haleon share price down, the group was able to report steady revenue growth for the six months as a strong cold and flu season supported sales.

Revenue is expected to increase 13.4% to £5.19bn in H1, with sales growth in all its product categories. In particular, the company forecasts strong 50.1% growth in its respiratory health product sector. This was led by a strong cold and flu season, which the company noted was “20% ahead of 2019 levels” and is expected to add 4% to organic growth in the first half of the year. As a result, Haleon expects sales of its Theraflu symptom relief drug to more than double over the period.

While revenue growth remains strong, it is expected that inflationary cost pressures will erode operating margins in both the upcoming half-year results and the full-year results, which are due to be reported in March 2023. The group is hopeful, however, that continued strong growth will be able to offset the price pressures over the next few months, with full-year organic revenue growth expected to be between 6­–8%.

Zantac lawsuit casts dark cloud over Haleon shares

The main pressure on the Haleon share price in recent weeks has been its connection to a major drug trial for heartburn medication Zantac. It has been facing claims that there is a link to it causing cancer in users. The drug was organised licensed and sold by parent company GSK until the patent expired in 1997, with various other companies owning the rights to the drug since then.

In a press statement released by Haleon at the beginning of August, the group stated that it has never marketed or sold the drug in any form, and it is not a party to any of the claims that have been made about Zantac. However, it has been noted that it may be required to indemnify GSK and Pfizer [PFE], which has still spooked some investors. Even if Haleon is not hit by any monetary charges from the trial, there could still be some damage to its reputation by having links to the drug.

Analysts remain upbeat ahead of earnings report

Despite the challenges facing the company, analysts are fairly optimistic when it comes to the outlook of its shares. Out of 13 analysts polled by the Financial Times, two rated the shares a ‘buy’, four believe that they will ‘outperform’, six gave ‘hold’ ratings while the remaining analyst rated them a ‘sell’.

From 12 of these analysts giving 12-month price targets for Haleon shares, there was a median target of 343.5p. This is equivalent to a 29.9% upside on its 15 September closing price of 264.45p.

According to MarketBeat, the stock has a consensus ‘hold’ rating from six brokers, with an average target of 321p suggesting a 21.4% upside on its most recent closing price. Ahead of the upcoming earnings update, several brokers have issued updates on Haleon stock.

On 9 September, Deutsche Bank restated a ‘hold’ recommendation for Haleon shares and set a 300p target, while JPMorgan analysts lowered their price target from 280p to 250p and maintained an ‘underweight’ rating in a research note on 7 September.