So far, 2022 has been a very difficult year for investors, as macroeconomic uncertainties have dominated. I’ve felt the impact of this within my own portfolio, with some of my top shareholdings down by considerable percentages. But instead of panicking, I think this offers a great time to pick up shares on the dip. Here’s a FTSE 100 stock that has fallen over 30% in the past year, and now trades at bargain levels.
Pharma stock
With a market capitalisation of £3.6bn, Hikma Pharmaceuticals (LSE: HIK) is one of the biggest UK biotech stocks, only trailing giants like AstraZeneca and GlaxoSmithKline. Hikma was founded in 1978. Over the years, it has been able to establish itself as an industry leader, focusing on manufacturing non-branded generic and licenced pharmaceutical products.
However, the past few months haven’t been pretty for the firm, with the Hikma share price falling 24% year-to-date. It has also fallen around 30% in the past year. It has underperformed the wider FTSE 100 index during this period by a wide margin.
There have been several factors behind this decline. Firstly, in the recent trading update, it was announced that the company’s treatment for narcolepsy would be delayed until late 2022 or early 2023. This will impact the performance of Hikma’s Generics division this year. Indeed, revenues are now expected to total around $730m, against previous guidance of $820m. Operating margins in this division are also expected to be around 20%, falling from previous estimations of 24%.
Secondly, the Generics business is also expected to be hit by increased competition and a challenging pricing environment. As the division contributes towards around 32% of the firm’s revenues, this is a major issue.
Why do I like this FTSE 100 stock?
Despite these worries, I still like the future prospects of the company. Indeed, the delay to the narcolepsy drug doesn’t affect its long-term outlook as it simply shifts the revenue and profit contribution from the drug to the first half of 2023, instead of 2022. This isn’t a worry for me.
In addition, Hikma’s other divisions are performing well, which should offset the current disruptions in Generics. For example, injectables revenue is expected to grow in the mid-to-high single-digits, which is higher than previous expectations of low-to-mid single-digits. As the injectables business contributes 41% of the group’s revenues, this is great news.
Finally, I’m impressed with the firm’s strong shareholder returns. For example, in 2021, its dividend totalled 54 cents per share, around a 3% dividend yield. Although this isn’t among the highest in the FTSE 100, it remains a compelling reason for me to buy, especially as it’s very well covered by profits. The group also has a share buyback programme of $300m running throughout 2022, which suggests to me that the Hikma share price may be undervalued.
What am I doing now?
With a price-to-earnings ratio of only 10, Hikma trades at far lower valuations than other biotech stocks, such as AstraZeneca and GSK. With several new products being added to the Generics business, I also believe that future growth is realistic. Therefore, this FTSE 100 stock looks ‘dirt-cheap’ to me right now. I may add some Hikma shares to my portfolio.
