Can this FTSE 100 stock grow 2x in 2 years?

The FTSE-listed generic manufacturer has been overlooked by many since joining the blue-chip index. Dr James Fox takes a closer look.

| More on:
Young Asian man drinking coffee at home and looking at his phone

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Hikma Pharmaceutical (LSE:HIK) is a generics and injectables manufacturer that gained promotion to the FTSE 100 back in September.

However, the Amman-founded company hasn’t performed too well since it joined the blue-chip index. In fact, the generics manufacturer is down 17.8% over three months.

The business

Hikma has three main business segments: Generics, Injectables, and Branded.

  • Generics: develops, manufactures, and markets generic pharmaceuticals. This business segment declined in 2022, but has recovered in 2023.
  • Injectables: develops, manufactures, and markets generic injectable pharmaceuticals in the US, Europe, and the Middle East and North Africa. This segment delivered $643m in revenue in 2022.
  • Branded: develops, manufactures, and markets branded pharmaceuticals in the Middle East and North Africa. The company achieved sales of $1.3bn in this segment in 2022.

Performance

To date, 2023 has been a good year for the business. In H1, the company saw revenue rise 18% to $1.4bn and core profit rise 35% to $401m. This supported EBITDA rising 30% to $451m and a rise in core basic earnings per share to 128.5¢, up 40% year on year.

Group Financial Highlights: H1

In a November trading update, Hikma upgraded its full-year guidance in two of its three business segments — not the Injectables division due to supply-chain hiccups.

Headwinds and tailwinds

My optimism for Hikma stems from its diversified business model and global presence, particularly in the lucrative US market where it’s one of the top three generics manufacturers.

Source: Hikma H1

With three distinct segments, the company avoids over-reliance on one area. Additionally, strategic expansion into the growing pharmaceutical markets of North Africa and the Middle East positions Hikma for potential growth.

However, challenges such as price pressure in the generics market, loss of exclusivity for certain products, and regulatory hurdles pose potential risks to the company’s performance, broadly reflecting those of the wider industry.

2x in 2 years?

With the Hikma share price falling further since early November, the company’s valuation metrics have become more attractive as evidenced by the below price-to-earnings ratios.

202320242025
EPS Forecast$1.42$1.89$2.01
P/E ratio15.211.410.8

Assuming a 10% annualised growth rate, Hikma appears to be trading at with a PEG ratio around 1.5. That’s not overly expensive. In fact, while one is normally representative of fair value, it’s among the cheapest I’ve come across on the FTSE 100.

I’m certainly expecting to see the Hikma share price recover over the medium term. In 2019, the company registered basic EPS of $2.01 — that’s the last time EPS pushed above $2. This, and the pandemic, was the catalyst for the stock rising above £25 in 2020.

However, I’m not expecting the share price to double in the next two years. That said, it might be possible with new facilities coming online and some analysts forecasting EPS to hit $3 before the end of the decade.

There’s a strong investment hypothesis here based on impressive growth prospects and sector forecasts. That’s why I’m considering it for my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged black male working at home desk
Investing Articles

Are these top-traded FTSE 100 shares the best to buy for 2024?

The market has disagreed with me pretty much all year on the best buys among FTSE 100 shares. But, are…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

My five favourite forms of passive income

I've been looking for ways to pump up my passive income, so I can retire richer. But which of these…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

What’s the FTSE 100’s best 10% dividend yield?

Depressed prices have thrown up some golden opportunities on the FTSE 100. Which of these 10%-yielding Footsie stocks should I…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

BP shares look dirt cheap

Are BP shares a brilliant bargain? The financials look excellent and it’s hard not to call them anything other than…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

My 12 fears for the stock market in 2024

After a terrific year for global stock markets in 2023, what can I look forward to in 2024? As a…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

2 income shares for bumper dividends in 2024

I own these two income shares for their outstanding ability to deliver billions of pounds of cash dividends each year…

Read more »

Investing Articles

Could the IAG share price hit £2.11 in 2024?

According to analysts, the IAG share price could be headed for £2.11. But Stephen Wright wonders whether the stock is…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

1 hot UK growth stock I’m buying right now

I've more than doubled my money on this UK growth stock. But with a 948% boost to earnings, I think…

Read more »