Haleon’s share price hasn’t had the best start to 2023. Going into the new year, Haleon’s share price had soared thanks to increased demand for its cold and flu medicines and the dismissal of a potentially damaging lawsuit in the US. However, analysts at Barclays see a 15% upside on the stock.
Haleon’s share price [HLN.L] is experiencing a new year's headache. After climbing 15.2% in December, the stock has dropped 4.4% in the first week of trading this year, closing Thursday 5 January at 313p.
Haleon’s stock had been on the rise since early-September with decent third quarter results, including increased demand for cold and flu medicines, which lifted investor sentiment. Other tailwinds included the dismissal of a potentially damaging lawsuit in the US and a ratings upgrade from Barclays.
What’s happening with Haleon’s share price?
Haleon was spun out of GSK [GSL.L] last year in what was the biggest European IPO of the past decade. Haleon shares debuted on the LSE at 330p on 18 July, giving it a £28.5bn market valuation.
By 5 September the stock had dropped to a low of 246.15p, before going on to accelerate to 327.5p in a rally that finally topped out on New Year’s Eve.
Rise in cold and flu boosts Haleon sales
Haleon’s solid momentum at the end of last year was helped by many of its products being in demand due to high levels of colds, flu and Covid-19. In the third quarter, the company reported a 30% year-on-year increase in respiratory sales.
"Respiratory performance was strong given sustained incidences of Covid and cold and flu combined with successful innovation,” said chief executive Brian McNamara.
Demand has continued into 2023 with UK pharmacies this week reporting a shortage of cold and flu medicines, including Haleon’s Beechams and Day and Night Nurse, according to the Financial Times.
Overall in the third quarter, revenue grew 16.5% to £569m, with adjusted operating profits up 14.9% to £725m. This excludes £142m of separation and admission costs. Haleon upped its guidance for full year organic revenue to grow 8.8.5%, up from a previous 6-8% guidance in organic growth.
Barclays upgrades rating on Haleon
Haleon’s share price got a further lift in December following a victory in a legal case over heartburn medicine that had dragged on the stock.
US district judge Robin Rosenberg dismissed almost 2,500 lawsuits that claimed the drug Zantac. Rosenberg said that the lawsuits were based on flawed science. The dismissal means that the lawsuits will not go to trial unless there is a successful appeal.
Following the ruling, analysts at Barclays upped their rating on Haleon to ‘overweight’ from ‘neutral’, saying that Zantac was “substantially derisked” and the stock was “investible again for those without the appetite for pharma litigation risk”. Morgan Stanley had estimated that damages to Haleon and its fellow defendants, which included GSK [GSK] and Sanofi [SAN.PA], could be on the hook for between $10.5bn to $45bn in damages.
The Barclays’ analysts upped their share price target on Haleon to 360p from 298p — a 15% upside on Thursday’s close.
Where next?
The strength of household brands like Sensodyne toothpaste and Panadol painkillers have meant Haleon has been able to increase prices while maintaining volumes. Price growth was up 5.5% in the third quarter.
Of course, there could be a limit on just how far sales continue to grow. If Haleon keeps increasing prices, volumes could follow. Customers may look to cheaper generic alternatives to cure headaches and supplement vitamin intake, especially as the cost of living crisis shows no signs of abating.
Debt reduction is likely to be a key growth driver in 2023. Haleon went public with a debt load of over £10bn. At the time, broker Jefferies said the debt was “notably high” by stock market standards. How Haleon gets on reducing this will be closely scruntinised.
The 14 analysts polled by Refinitiv have a 327.5p median price target on Haleon shares, suggesting a 1.5% upside on Thursday’s close.
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