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

Generic pharmaceutical company Hikma Pharmaceuticals (LSE: HIK) released decent-looking interim results today and the shares are up around 7% as I write.

What a fantastic turnaround we are seeing from this firm. Today’s rise adds to what has been a share-price recovery of more than 100% since the stock’s nadir in February. A three-year run of falling earnings has been well and truly broken this year and the market likes it.

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Good figures

The figures are rather good. Constant currency revenue in the first half of the year lifted 10% compared to the equivalent period last year, earnings per share shot up a spectacular 57% and net debt fell by 8% to £501m. The directors raised forward guidance for the firm’s Injectables and Generics businesses and reiterated previous guidance for the Branded business. There’s no doubt that the outlook is positive and to underline that point, they pushed the interim dividend just over 9% higher.

Chief executive Siggi Olafson explained in today’s report that Hikma operates in competitive markets and the company doesn’t expect demand to remain as robust for some its injectable products in 2019. “This means we must remain focused on strengthening our customer relationships, improving profitability and advancing our pipeline to ensure future growth.” Hikma has demonstrated its ability to keep ahead of changing dynamics in the markets it serves and could do well from here. I reckon the stock is worth researching with a view to making it a long-term hold alongside pharmaceutical Goliath AstraZeneca (LSE: AZN), which also seems to be emerging from a period of declining earnings.

Emerging growth

The company suffered from falling sales of some of its best-earning products when their patents expired, which opened the market to generic competition from the likes of Hikma Pharmaceuticals. But in the first half of this year, the firm saw strong sales growth from new medicines and the continued strength of the Emerging Markets business.” However, that progress was offset by the firm’s Crestor brand losing exclusivity in Europe and Japan. But looking forward, better days should be coming and the directors expect an improved performance in the second half of this year with increased product sales and news from the pipeline.

Normalised earnings look set to come in more than 50% higher this year and to advance almost 15% in 2019. The stock has moved up around 17% since the beginning of the year, reflecting the improving outlook, but I still think it’s worth considering for a long-term portfolio. The pharmaceutical sector remains attractive to me because of steady demand for medicines, which often leads to reliable cash inflows.

Despite recent challenges, the firm looks set for a period of growth. Chief executive Pascal Soriot said in July’s half-year report that AstraZeneca’s rich pipeline and sharp commercial focus make us confident that we have in place the right conditions for our return to growth this year.” A string of recent pipeline releases bodes well for the future, and I reckon the firm is well worth your research time right now.

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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.