Haleon stock forecast: Will the stock rebound to debut price?
On 6 July 2022, shareholders of GlaxoSmithKline (GSK), one of the UK’s largest biotech stocks, voted to approve the company’s plan to spin off its consumer healthcare business into a new company named Haleon.
The spin-off came amid a looming global economic slowdown, making investors look for defensive stocks such as healthcare companies that consistently pay dividends.
After the demerger, Haleon was listed on the London Stock Exchange (LSE) under the ticker symbol HLN. It was the biggest new listing on the exchange in over a decade. On 20 September, Haleon announced its maiden earnings report after separating from GSK, showing strong performance.
However, litigation faced by GSK over blockbuster heartburn drug Zantac posed headwinds for Haleon. Since debuting on the London Stock Exchange on 18 July 2022, Haleon's share price has dropped more than 13% as of 20 September, to trade at around £2.64.
Here we take a closer look at the Haleon stock forecast, its latest financial performance and analysts’ views on the company.
What is Haleon?
Haleon was established by GlaxoSmithKline’s consumer healthcare business. It came from integrating the consumer health portfolio of Novartis AG (NVS) in 2015 and the Pfizer (PFE) portfolio in 2019.
GSK owned 68% of the consumer healthcare business and Pfizer 32%. Haleon operates in the areas of therapeutic oral health, pain relief, respiratory health, digestive health and vitamins, minerals and supplements.
Among of its portfolio are leading global brands such as toothpaste Sensodyne, painkillers Panadol and Advil, the anti-inflammatory drug Voltaren and Otrivin nasal spray. It also has some local strategic brands such as TUMS, ENO, Flonase, ChapStick and Emergen-C.
The company’s products are sold in more than 100 markets around the world. In addition, it has one of the largest pharmacy networks and coverage in Europe and partnerships with retail and pharmacy in the US.
Over the past two years, e-commerce sales became a key growth channel with a two-fold increase in sales, with solid outperformance in China.
Potential suitors for Haleon
GSK demerged Haleon in order to focus on biopharmaceuticals, which will include vaccine development and specialty medicines. GSK sought shareholders’ approval for the corporate action in a general meeting on 6 July.
The demerger took 80% of GSK’s holdings and established a level 2 sponsored American depositary receipt (ADR) programme on the New York Stock Exchange (NYSE), allowing foreign companies to trade their shares on US exchanges.
The pharma giant announced its second-quarter results on 27 July and will now treat Haleon as a discontinued operation. GSK shareholders will receive one Haleon share for one GSK share they own.
Haleon’s demerger plan attracted a series of initial potential suitors to take over the company, including consumer goods giant Unilever (ULVR), food and beverage company Nestle (NESN) and UK consumer goods company Reckitt Benckiser (RB).
In January, GSK confirmed that it had received three unsolicited, conditional and non-binding proposals from Unilever to acquire the GSK consumer healthcare business. The latest proposal on 20 December 2021 was for a total acquisition value of £50bn.
The pharma benemouth rejected all three proposals because “they fundamentally undervalued the consumer healthcare business and its future prospects”.
According to Bloomberg reports, Nestle backed off from its bid to acquire Haleon after months mulling over a potentially partnership with Reckitt Benckiser, a Slough-based company that is already a big player in consumer health with brands such as Strepsils and Nurofen.
First earnings report shows strong performance
Haleon reported strong growth in the first half of 2022. In its first earnings report after being split from its parent company GSK, Haleon’s interim revenue rose 13.4% to £5.18bn in the first six month ending 30 June, the company reported on 20 September 2022.
Its operating profits increased by 22.1% to £900m while adjusted operating profits jumped by 21.2% to £1.19bn.
The company generated £680 net cash from operating activities, which included £224m related to net cash outflows from separation, restructuring and disposals.
Haleon maintained its 2022 guidance of 6%-8% organic revenue growth while adjusted operating margin was expected to be slightly down.
“Strong growth, the Pfizer synergies, pricing and ongoing supply efficiencies will largely offset Haleon standalone costs (£175m-£200m), continued investment, inflationary cost pressure and the impact of Russia and Ukraine. Assuming current spot rates are sustained for the rest of the year, currency will be slightly positive on adjusted operating margin,” the company said.
It also kept the medium-term guidance which expected annual organic revenue growth of 4-6% and sustainable moderate adjusted operating margin expansion at constant currency. It expected net debt/adjusted EBITDA to be below 3x by the end of 2024, and an initial dividend at the lower end of the 30%-50% pay-out range, which will be subject to Haleon’s board approval.
Haleon stock forecast: Analyst views
Following Haleon’s strong debut on the LSE, how do analysts view the outlook for its business?
Within weeks of its debut in July, Haleon faced headwinds from litigation related to heartburn drug Zantac which was previously marketed by GSK. Lawsuits have been filed against Zantac, with petitioners claiming it contained a cancer-causing substance called NDMA or ranitidine.
Concerns about the safety of the drug arose in 2018 after NDMA was detected in Zantac, prompting the US Food and Drug Administration (FDA) and the European Medicine Agency (EMA) to order GSK to remove Zantac from the market.
More than 2,000 legal cases involving Zantac have now been filed in the United States, with GSK facing lawsuits in the United States, Canada, and Israel.
In the first-half earnings statement on 20 September, Haleon reiterated that it was not a party to any Zantac claims. It also rejected requests for indemnification from GSK and Pfizer over the Zantac litigation.
Haelon said it rejected the request on the basis that “the scope of the indemnities set out in the joint venture agreement only covers their consumer healthcare businesses as conducted when the JV was formed in 2018. At that time, neither GSK nor Pfizer marketed OTC (over the counter) Zantac in the US or Canada.”
Hargreaves Lansdown’s Clayton said litigation on Zantac was a distraction. However, Clayton said because Haleon never sold the product, Hargreaves Lansdown did not expect Haleon to incur significant financial costs because of the litigation.
“With strong cash flows, Haleon should rapidly deleverage, which will help to drive financial returns higher, over and above the growth from the brands portfolio. Haleon should have excellent dividend growth potential over the longer term as a result,” wrote Clayton.
In their Haleon stock forecast for 2022 and beyond, Jefferies wrote that the company was likely to achieve mid-term sales growth at the lower end +4% to 6%. Investor sentiment has improved with bulls leaning toward the new GSK trajectory, Jefferies added.
Haleon share price forecast: 2022 target and beyond
Thirteen analysts polled by MarketScreener offered a price target for the Haleon share price at average £3.29 with a high price estimate of £3.80 and a low price target of £2.50. The consensus rating on the stock was ‘outperform’ as of 20 September.
Six analysts tracked by MarketBeat expected the Haleon share price to average £3.21 as of 20 September 2022. The analysts offered a high price target of £3.68 and a low price target of £2.50. The analysts rated Haleon stock price a ‘hold’.
As Haleon’s stock only started trading on 18 July, there is limited coverage for a Haleon stock forecast for 2025.
Algorithm-based price predicting services, such WalletInvestor, provided a Haleon long-term stock forecast. WalletInvestor was bearish on the Haleon share price, noting that it was “a bad long-term (1-year) investment”.
The service forecast Haleon shares to trade at £1.53 in December 2022 but plunge to £0.000001 by December 2024. In its Haleon stock forecast for 2025, WalletInvestor expected the stock to remain at £0.000001 from December 2025 to September 2027.
Note that analysts’ and price forecasting services’ views on the Haleon stock price can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading, and never invest or trade money you cannot afford to lose.
FAQs
Is Haleon a good stock to buy?
Whether Haleon stock is a good investment for you will depend on your investment goals, risk tolerance and the size of your portfolio. It is important to do your own research before any investment or trading decision. Never invest or trade money that you cannot afford to lose.
Will Haleon stock go up or down?
As of 20 September 2022, analysts polled by MarketScreener and Market Beat expected the Haleon stock price to go up, while price forecasting service WalletInvestor forecast the stock could drop in the longer term.
Remember that analysts’ and price forecasting services’ views on the Haleon stock price can be wrong. Always do your own research before making any investment decision.
Should I invest in Haleon stock?
Whether you should invest in Haleon will depend on your risk tolerance, investing goals and portfolio composition. Always conduct your own due diligence, and never trade more money than you can afford to lose.
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