After largely trading sideways since its 2022 spin-off from GSK, the Haleon (LSE: HLN) share price is finally moving higher. Over the last month, the FTSE 100 stock has risen about 11%.
I’m looking for a bit more healthcare exposure right now as I like the sector from a risk/reward perspective. Could Haleon – which owns well-known consumer healthcare brands such as Sensodyne, Panadol, and Voltaren – be a good stock to buy for my portfolio? Let’s discuss.
Performing well
Haleon’s recent half-year results were decent. For the six-month period to the end of June, the company saw:
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- Organic revenue growth of 3.5%
- ‘Power Brands’ organic growth of 5.6%
- An 11% increase in adjusted operating profit
- Free cash flow of £831m versus £369m a year earlier
On the back of these results, the company increased its H1 dividend by 11%. That’s a decent hike although the stock’s yield is only around 1.6% at the moment.
Looking ahead, Haleon provided new FY24 guidance. It now expects organic revenue growth to be between 4% and 6% and organic operating profit growth to be in the high single digits.
We are well positioned to deliver on our full year organic revenue growth guidance and now expect high-single digit organic profit growth. Given the successful delivery of the strategy to date Haleon is also well placed over the medium term.
CEO Brian McNamara
Overall, the results showed that the company has some momentum right now.
Any value on offer?
What about the valuation though?
Well, at present, City analysts expect Haleon to generate earnings per share of 18.1p this year and 19.6p next year.
So, at today’s share price of 375p, the forward-looking price-to-earnings (P/E) ratio here is 20.7, falling to 19.2 using next year’s earnings forecast.
It’s hard to know to think of those multiples, in my view.
On the one hand, Haleon owns a portfolio of top consumer healthcare brands and has relatively steady revenues. So, it probably deserves a premium valuation.
It’s worth noting that since the H1 numbers, analysts at Berenberg have raised their target price to 447p from 410p. That new target is nearly 20% above the current share price.
On the other hand, there’s quite a bit of debt on the company’s balance sheet. At 30 June, net debt was £8,415m, which equates to a net debt/EBITDA multiple of 2.9 (that’s relatively high).
One other risk here is consumer weakness. If consumers continue to rein-in spending, they could trade down to cheaper consumer healthcare brands.
Should I buy?
Weighing everything up, I’m going to hold off on buying Haleon shares for my portfolio for now.
I do think there’s a lot to like about this company from an investment perspective.
However, all things considered, I think there are better opportunities in the market for me today.
