On Thursday, Bernstein analysts revised their stance on Haleon PLC (HLN:LN) (NYSE: HLN), downgrading the stock from 'Outperform' to 'Market Perform'. Simultaneously, they raised their price target from GBP3.80 to GBP4.00.
The analysts noted that Haleon had experienced a significant re-rating in 2024 despite negative revisions to estimates, leading them to view the stock as broadly fairly priced at the start of 2025. This assessment aligns with InvestingPro data, which shows the stock trading at a P/E ratio of 28.4x and indicates fair valuation based on its proprietary Fair Value model.
Bernstein highlighted Haleon's position as a safe haven in the market, citing its high cash-conversion and low economic exposure relative to its peers. Nonetheless, the analysts pointed out that for Haleon to see further re-rating, it would need to consistently deliver over 5% organic growth. This growth rate is deemed unlikely by Bernstein, given the slowdown in Oral Care growth during the second half of 2024 and anticipated competitive launches from Procter & Gamble (P&G) in 2025.
The new price target of GBP4.00 reflects a change in valuation metrics, with Bernstein applying an enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 13.1x. This is a reduction from the previous multiple of 14.6x.
The adjustment is made against a raised forward next twelve months plus one (NTM+1) EBITDA estimate of GBP 3,181 for Haleon. According to InvestingPro, the company maintains a GOOD financial health score of 2.57, with particularly strong marks in profitability metrics. Subscribers can access 5 additional ProTips and a comprehensive Pro Research Report that provides deeper insights into Haleon's financial position and growth prospects.
The downgrade comes after Haleon's stock benefited from a re-rating last year, which occurred despite the company facing downward revisions in its financial estimates. The analysts' decision reflects a recalibration of expectations for Haleon's stock performance in the face of market dynamics and competitive pressures. With a market capitalization of $42.67 billion and analyst price targets ranging from $9.50 to $11.77, investors seeking deeper insights can access comprehensive valuation analysis through InvestingPro's detailed research reports.
Investors and market watchers will now be observing Haleon's performance closely, especially in regards to its organic growth capabilities and how it contends with new competition entering the market in 2025. The company's ability to navigate these challenges will be critical in determining if the stock can surpass the market performance level set by Bernstein's analysts.
In other recent news, Haleon plc has reported significant earnings and revenue results, including a £230 million off-market share repurchase from Pfizer Inc. (NYSE:PFE) The company also increased its stake in the Chinese joint venture, Tianjin TSKF Pharmaceutical (TADAWUL:2070) Co. Ltd, to 88% and finalized the divestment of its nicotine replacement therapy business to Dr. Reddy's Laboratories SA in a deal worth up to £500 million. Haleon's Chief Financial Officer, Dawn Allen, vested an award of Haleon Ordinary Shares and sold a portion to cover tax obligations, retaining a significant number of shares.
The company also underwent key changes to its board, with David Denton resigning as a Non-Executive Director and Bláthnaid Bergin stepping in as an independent Non-Executive Director. In terms of analyst ratings, Morgan Stanley (NYSE:MS) maintained an Overweight rating on Haleon's stock, despite a minor reduction in EPS estimates for FY25/26, while Goldman Sachs downgraded Haleon's stock from "Buy" to "Neutral." Berenberg initiated coverage with a "Buy" rating.
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