Nearing the close of its thirteenth trading week, the Haleon (LSE:HLN) share price has had a tough start. Haleon first began trading at 330p and saw lows of almost 240p by the start of September. But since then, it has confidently recovered.
On Tuesday, Haleon was a top FTSE 100 performer with high volumes traded. As I write, the share price stands at 273p.
So, what does Haleon do? Where has the company sprung from? And should I be looking to invest in it?
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A FTSE 100 giant subsidiary
Haleon was born out of GSK, a pharmaceutical giant, as its own independent company. It has taken ownership of some big-name brands such as Aquafresh, Panadol, Voltaren, and Nicorette.
The company is a dominant player in supplying oral health, pain relief and vitamin products.
The American pharmaceutical giant Pfizer owns a 25% stake in the new company.
The separation follows as GSK plans to focus its investment efforts on vaccines and speciality medicines. By contrast, Haleon — with a fresh balance sheet — will be a cash-generative business with quality brand names intended to attract investors looking for sustainable growth.
The latest earnings report
During the first week of trading, claims against GSK that one of its drugs, Zantac, causes cancer applied downward pressure to the Haleon share price.
Soon after listing, Haleon increased its expectations for revenue growth. It claims its brands have relatively inelastic demand even when faced with economic uncertainty.
Market commentators speculated otherwise, expecting that consumers would be downgrading to supermarket own-brand products. However, September earnings met expectations with no downside surprise.
This has acted as a springboard for the share price, which has stabilised at 5% higher since the earnings report.
Should I invest?
Meeting its initial growth targets is growing confidence among investors in the new corporate entity and its strategy.
Encouragingly, the company’s e-commerce sales are growing fast and have climbed to 9% of all revenue generation. Analysts are forecasting a 6.8% in annual revenue growth in the medium term.
Over 10 research firms have assigned Haleon a rating of “hold” as their recommendation.
Haleon’s balance sheet currently has relatively low levels of debt in comparison to GSK. Its rich cash flow also gives it plenty of opportunity to manage the debt going forward. This is certainly something I like to see in the face of rising interest rates.
Haleon’s strong portfolio of brands is already holding up against economic decline. With the company newly established, I certainly think there’s an opportunity for the share price to reach new highs as investors chase defensive stocks.
However, the UK recently reported a 0.3% economic contraction. The extent to which contraction continues nationally and internationally may begin to have a more noticeable influence over consumers substituting brands.
There is also a question about GSK’s potential legal liabilities due to its sale of Zantac. Trials will begin next year. Haleon is also at risk to liability but claims otherwise as it has never marketed Zantac. Either way, the outcome of the dispute is likely to have a big impact on the price for both companies.
I plan to buy shares in Haleon should the price fall below 270p again, with the hope that the earnings report on 10 November will be just as solid as the last.
