On Tuesday, Deutsche Bank (ETR:DBKGn) adjusted its outlook on Haleon PLC (HLN:LN) (NYSE: HLN) shares, reducing the price target to GBP3.40 from GBP3.45, while keeping a Hold rating on the stock. The revision reflects a series of forecast changes and external factors impacting the company's financial projections.
The bank's analyst cited minor alterations in operating forecasts, the influence of foreign exchange rates, asset disposals, and an anticipated higher tax rate as primary reasons for the adjustment. These factors collectively led to a reduction in the forecasted earnings per share (EPS) for fiscal years 2024 and 2025 by 2.4% and 5.1%, respectively.
Following the revised estimates, Haleon's stock is now valued at 12.9 times the expected 2025 enterprise value to EBITDA (EV/EBITDA) and 17.8 times the projected 2024 price to earnings (PE) ratio.
Additionally, the stock's free cash flow (FCF) yield to enterprise value is calculated at 4.7%. These metrics are placed in context with the broader Staples sector, excluding Tobacco, which averages at 12.4 times the expected 2025 EV/EBITDA and 19.9 times the projected 2024 PE, with a 4.4% FCF yield.
The analyst also drew comparisons with Colgate, noting that applying Colgate's forward 12-month PE to Haleon's Oral Care segment would leave the remainder of the business valued at 14 times the 12-month earnings.
This valuation, according to the analyst's commentary, could be considered low if the cold and flu segment performs strongly. The potential for Haleon's stock re-rating was linked to the performance of this segment.
"In other recent news, Haleon reported a solid Q1 growth with a 3% increase in organic revenue, largely due to a 5% price hike. This growth was accompanied by a 12.8% rise in adjusted operating profit and a 5% increase in gross profit. As part of Haleon's strategy to enhance its global supply chain, the company announced plans to close manufacturing facilities in Slovakia and Maidenhead.
In addition to these developments, Berenberg initiated coverage on Haleon with a 'Buy' rating, indicating a potential 25% upside from the previous day's closing price. The firm's positive outlook is based on several factors, including the anticipated US launch of Eroxon, which is expected to drive sales growth beyond market expectations. Berenberg also highlighted that Haleon's shares are currently trading at a 17% discount compared to its peers in the household and personal care industry.
These recent developments reflect the company's ongoing efforts to optimize operations and maximize shareholder value. As Haleon continues to navigate the market, it remains confident in achieving its full-year 2024 guidance."
InvestingPro Insights
Adding to the insights provided by Deutsche Bank, InvestingPro data indicates that Haleon PLC boasts a strong gross profit margin of 61.94% over the last twelve months as of Q1 2024, underscoring the company's ability to maintain profitability despite market fluctuations. The company's market capitalization stands at $38.21 billion, with a forward P/E ratio for the same period at 23.62, suggesting a potentially more attractive valuation compared to the current P/E ratio of 29.29.
InvestingPro Tips also highlight that Haleon has been profitable over the last twelve months, and analysts predict it will continue to be profitable this year. However, investors should note that two analysts have revised their earnings downwards for the upcoming period, which may impact future performance. For those looking to delve deeper into Haleon's financials and future prospects, there are additional InvestingPro Tips available at https://www.investing.com/pro/HLN. Use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and gain access to an expanded array of insights.
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