Haleon (LSE:HLN) shares are quite unique. After all, the company’s the only pure-play consumer health business on the index. Most other big healthcare names are pharma giants such as AstraZeneca or GSK, or their diversified consumer goods players including Unilever and Reckitt. Because of that uniqueness, it’s one of those stocks that’s long been on my watchlist.
So would an investment in Haleon have been successful? Well, the stock’s actually down 8% over the past 12 months. As such, £10,000 invested then would be worth £9,200 today. That’s not great, but around £180 in the form of dividends would have cushioned the blow ever so slightly.
What’s behind the drop?
Haleon shares have struggled over the past 12 months as investors reassessed growth expectations in consumer healthcare. The stock was pressured by concerns around slowing demand in key categories, especially in North America, where its respiratory portfolio faced a softer consumer environment after strong post-pandemic comparisons.
Questions over the company’s ability to consistently deliver top-line growth while managing cost inflation and foreign exchange headwinds also weighed on sentiment. At the same time, Haleon’s relatively high debt load from the GSK spin-off left the market cautious, particularly in a higher rate environment.
Its latest half-year results highlighted both sides of the story. Profitability looked strong, with margins expanding on the back of supply chain efficiencies and productivity gains, while oral health delivered robust growth.
However, management cut its organic revenue growth guidance for FY25 to around 3.5% (down from 4-6%). This reflects some weakness in North America. That trade-off between margin resilience and top-line momentum has remained central to the stock’s performance.
Not obviously undervalued
Haleon’s valuation reflects the market’s view of it as a steady, brand-driven cash generator rather than a high-growth story. The stock trades on a forward price-to-earnings (P/E) that steps down from 20.7 times in 2025 to 17.3 times by 2027. That’s broadly in line with consumer staples peers and suggesting earnings growth should gradually bring the multiple down.
At the same time, the company’s strong free cash flow generation supports both deleveraging and dividend growth. Dividends are growing steadily, with the payout ratio settling around 40%. That translates into a prospective yield moving from 1.9% in 2025 to around 2.4% by 2027.
While this yield’s modest, some investors will be reassured to know that these payments are backed by resilient earnings from household brands such as Sensodyne and Panadol.
Net debt‘s projected to fall from £9.9bn in 2022 to £6.4bn by 2027. That’s going to ease concerns about balance sheet leverage left over from the spin-off from GSK. Clearly, as debt’s falling, the balance sheet seems manageable, but it will still be a drag on earnings.
The bottom line
Analysts remain fairly positive on Haleon, with consensus at Outperform and an average target price of 413.6p — about 15% above the current share price. Personally, I don’t believe the stock’s clearly undervalued, but appreciate there’s a lot of value within the Haleon portfolio and the stock’s valuation isn’t overly demanding. As such, I do believe it’s worth considering.
