After being spun out of GSK last July, Haleon (LSE:HLN) has been a standalone business. The demerger of the consumer healthcare arm from the global pharmaceutical giant is trading pretty much exactly at the 330p IPO price. Yet from here, some research analysts at top banks think the Haleon share price could rally. So should I buy the stock now?
Listening to the professionals
As I always say to my friends, never buy a stock simply because others are keen on it. Buying due to the fear-of-missing-out has cost me dearly in the past. Doing my own research allows me to understand if a company meets my subjective criteria.
However, I do accept that the opinions of some are definitely worth listening to to help guide me. to that end, I looked at the analyst forecasts for Haleon from the likes of Morgan Stanley, Credit Suisse and Barclays. The lowest price target is 360p, with the highest being 376p. These targets are usually estimated to be hit within the next year.
From the current price of 330p, it’s clear that there’s upside to be had, if these analysts are correct. One helpful factor that caused Barclays to recently upgrade the price target was the dropping of litigation lawsuits on a drug named Zantac. With this now gone, the reputational and financial damages that could have existed no longer weigh on the company.
My view
Aside from what the big banks say, I also see potential gains for the share price going forward. The latest trading statement said that full-year 2022 organic revenue growth should have been 8%-8.5%. This helps to reassure me that GSK hasn’t just spun off some of the less desirable parts of the business via Haleon.
With revenue growth going forward, I think the company could imitate the returns of some big pharma stocks. The sector is know for having strong repeat revenue sources and generous margins. For example, Haelon had a Q3 operating profit margin of 25.1%. This means that it’s easier to generate a profit, as costs relative to income are lower.
One risk worth noting is the potential reduction in respiratory product demand. In the results, it said “respiratory performance was strong given sustained incidences of Covid and cold and flu combined with successful innovation”. As the world continues to move beyond Covid-19, the performance in this division could really slow down.
The verdict
In this case, my view ties in with the opinions of the research analysts. Therefore, I think I’ll buy some Haleon shares in the near future to add to my portfolio. Even if we reach 360p-375p later this year, I’ll probably hold the stock as this ties in with my long-term investment outlook.
