On Thursday, Morgan Stanley adjusted its outlook on Haleon Plc (NYSE:HLN), reducing the price target to $10.65 from the previous $10.95. Despite the adjustment, the firm maintained its Overweight rating on the stock. The revision comes as the firm updates its forecasts in anticipation of Haleon's third-quarter 2024 results, which are expected to be released on October 31, 2024.
The firm's year-over-year organic growth estimates for fiscal year 2024 remain at 5.0%, which is slightly above the consensus of 4.9%. However, Morgan Stanley has revised its third-quarter growth forecast down to 6.3% from 7.5%. This change is based on expectations of a more challenging environment for the vitamin, mineral, and supplement (VMS) segment in the U.S. market. This outlook is supported by recent scanner data and the high base effect from the launch of Centrum Silver.
Despite the downward revision for the third quarter, Morgan Stanley continues to project a 9% growth in organic earnings before interest and taxes (EBIT) for the full fiscal year 2024. However, the expected margins have been slightly reduced to 22.6% from the earlier forecast of 22.9%. This adjustment takes into account the impact of the recently concluded sale of the Nicotine Replacement Therapy (NRT) business and foreign exchange mark-to-market (FX M2M) changes.
The firm also noted adjustments to the earnings per share (EPS) estimates for fiscal years 2025 and 2026, which have been decreased by less than 1%. This slight revision is after factoring in the recent increase in Haleon's stake in the China joint venture. Consequently, the price target has been modified to reflect these EPS changes as well as the updated USD/GBP exchange rates since the last update.
In other recent news, Haleon plc has seen a flurry of activity, most notably the completion of a £230 million off-market share repurchase from Pfizer Inc. (NYSE:PFE) The consumer health company also finalized the divestment of its nicotine replacement therapy business outside the U.S. to Dr. Reddy's Laboratories SA, a deal worth up to £500 million. Furthermore, Haleon increased its stake in the Chinese joint venture, Tianjin TSKF Pharmaceutical Co. Ltd, to 88%.
Analysts from Morgan Stanley and BofA Securities have upgraded Haleon's stock price target, while Goldman Sachs downgraded it from "Buy" to "Neutral," and Berenberg initiated coverage with a "Buy" rating. The company also launched Eroxon®, the first FDA-cleared over-the-counter gel for the treatment of erectile dysfunction in the U.S.
In terms of corporate governance, Haleon announced the resignation of board member Alan Stewart. The company also completed a share buyback program, securing shares for its 2025 employee share plans.
InvestingPro Insights
To complement Morgan Stanley's analysis, InvestingPro data reveals some interesting insights about Haleon Plc. The company's market capitalization stands at $44.76 billion, reflecting its significant presence in the consumer healthcare sector. Haleon boasts impressive gross profit margins, with the latest data showing a gross profit margin of 62.54% for the last twelve months as of Q2 2024. This aligns with Morgan Stanley's positive outlook on the company's organic EBIT growth.
InvestingPro Tips highlight that Haleon operates with a moderate level of debt and is expected to be profitable this year, supporting the firm's Overweight rating. The company's P/E ratio of 33.17 suggests investors are willing to pay a premium for its shares, possibly due to its strong market position and growth prospects.
It's worth noting that Haleon's revenue growth has been relatively flat, with a slight decline of 1.31% over the last twelve months. This could be related to the challenging environment in the VMS segment mentioned in Morgan Stanley's report. However, the quarterly revenue growth of 0.84% in Q2 2024 might indicate a potential turnaround.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights that could provide a deeper understanding of Haleon's financial health and market position. There are 7 more InvestingPro Tips available for Haleon, which could be valuable for making informed investment decisions.
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