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Why I’d buy this FTSE 250 stock alongside AstraZeneca plc

Two and a half years ago, Hikma Pharmaceuticals (LSE: HIK) was a darling of the stock market. The stock had risen around 300% over three years driven by robust growth in earnings.

The multinational pharmaceutical firm concentrates on developing, manufacturing and marketing branded and non-branded generic and in-licensed products. But the wheels came off the growth momentum, and between 2015 and 2017, Hikma posted shrinking earnings. The market punished the stock by marking it down almost 60% from its peak and it now languishes close to 1,124p.

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A return to growth

However, I think it could be time to revisit Hikma and today’s announcement makes interesting reading. The company’s wholly-owned US subsidiary West-Ward Pharmaceuticals Corp. has launched Pantoprazole Sodium for Injection, which treats gastroesophageal reflux disease. Hikma reckons that, according to market insight company IMS Health, US sales of Pantoprazole Sodium for Injection were around $104m for the year to August. 

Chief executive of the Injectables division, Riad Mechlaoui, said the launch of the product will help reduce shortages in the US market, so it looks like the launch could be a shrewd move by the company with the potential to kick-start renewed growth. More product launches look set to follow in due course. Mr Mechlaoui tells us that Hikma is executing its Injectables pipeline and using the additional capacity it has been adding to its Portuguese facility to support future growth.

City analysts following Hikma expect earnings to reverse the decline of recent years by putting on 10% during 2018. Meanwhile, the share price remains depressed and I think it could be worth examining the investment opportunity right now.

A steady dividend with potential

The immediate outlook for earnings is more or less flat for FTSE 100 giant AstraZeneca (LSE: AZN). City analysts are expecting a 1% lift during 2018, but that’s better than the patent-expiry-induced falls we’ve seen over the past few years. Yet despite the challenges AstraZeneca has seen around earnings, the share price has climbed inexorably higher, which could be a function of the perception among many investors that the firm is something of a defensive safe haven in uncertain economic times.

The directors have managed to keep the dividend flat over the recent troubled period, and even today, after a more than 70% rise in the share price over the last five years, today’s 5,011p throws up a forward dividend yield of 4.3%, which isn’t to be sniffed at. I think many have been collecting the dividend payment while waiting for the firm’s development pipeline to launch the company into a new phase of growth, which strikes me as a fair tactic.

There’s plenty of evidence in AstraZeneca’s news feed that the firm is launching new products and doing deals. Such activity could combine to turn the leviathan around and set a new course for growth. On top of that, there’s always the possibility that the development pipeline will get its ducks lined up and score a blockbusting drug that turbocharges the firm’s growth numbers

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca and Hikma Pharmaceuticals. 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.

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