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

SSince Haleon’s spin-off from GSK in July, the consumer goods company has underperformed as inflation, debt and ties to a major pharmaceutical litigation dragged its share price lower ahead of the announcement of its first half results on Monday, September 19.

The Haleon [HLN.L] The stock price has disappointed since the spin-off from pharmaceutical giant GSK [GSK.L]. The company has suffered in recent months from mounting inflation concerns, high levels of debt and its involvement in a costly legal battle. Shareholders are hoping that the release of the half-year results on September 19 will help break the downtrend.

GSK formed Haleon after separating its consumer healthcare business from its core pharmaceutical business. It was believed that the company, which owns brands such as Sensodyne and Panadol, would be more valued by investors as a standalone company. GSK went so far as to reject a £50billion bid from Unilever [ULVR] for the newly founded company. However, Haleon shares have underperformed since their market debut, falling 19.9% ​​on Sept. 15 from the July 18 start of trading.

Haleon wasn’t the only consumer healthcare company to see its share price suffer in recent months. Shares in French competitor Sanofi [SAN.PA] are down 18.3% since Haleon’s debut, while US giant Johnson & Johnson [JNJ] declined by 4.6% over the same period.

Despite rising costs, sales are expected to increase

In late July, the company released a half-year trading update that sheds light on what’s expected in its upcoming earnings report. Despite the challenges dragging Haleon’s share price lower, the group reported steady revenue growth for the six months as a strong cold and flu season supported sales.

H1 sales are expected to rise 13.4% to £5.19 billion, with sales growth across all product categories. Notably, the company forecasts strong growth of 50.1% in its respiratory products sector. This was led by a strong cold and flu season, which the company said was “20% above 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 symptom-relieving drug Theraflu to more than double during this period.

While revenue growth remains strong, inflationary cost pressures are expected to erode operating margins in both upcoming half-year results and full-year results, due to be released in March 2023. However, the group is confident that continued strong growth will offset pricing pressures over the coming months, with full-year organic sales growth expected to be between 6% and 8%.

The Zantac lawsuit casts dark clouds over Haleon stock

The main drag on Haleon’s stock price over the past few weeks has been its connection to a major drug trial for heartburn drug Zantac. It has been claimed that there is a link to causing cancer in users. The drug was licensed and sold by parent company GSK until the patent expired in 1997, with various other companies having owned the rights to the drug since then.

In a press release issued by Haleon in early August, the group said it has never marketed or sold the drug in any form and is not involved in any of the claims made about Zantac. However, it was pointed out that GSK and Pfizer may need to be held harmless [PFE], which has still unsettled some investors. Even if Haleon doesn’t suffer any financial burden from the lawsuit, its reputation could still be tarnished by ties to the drug.

Analysts remain bullish ahead of earnings report

Despite the challenges the company is facing, analysts are quite bullish on the prospects for the stock. From 13 analysts surveyed by the Financial Times, Two rated the stocks as “buy,” four believed they would “outperform,” six gave “hold” ratings, while the remaining analyst gave them a “sell” rating.

Of those 12 analysts who provided 12-month price targets for Haleon shares, there was a median target price of 343.5 pence. This represents a 29.9% move up from the September 15 close of 264.45p.

According to MarketBeat, the stock has a consensus rating of “hold” from six brokers, with an average target of 321p, indicating a gain of 21.4% from the last close. Ahead of the upcoming earnings update, several brokers have released updates on Haleon stock.

On September 9, Deutsche Bank reiterated a “hold” rating on Haleon shares and set a target of 300 pence, while analysts at JPMorgan lowered their price target to 250 pence from 280 pence and on September 7 in a research note retained an “underweight” rating.