Hikma Pharmaceuticals Shares: Analyst Now More Confident in Growth – Here’s Why

Hikma Pharmaceuticals (LON: HIK) was upgraded to Buy from Hold at Berenberg this week, with an analyst at the firm telling investors in a note that they now have more confidence in the growth outlook across the business for the next year.

Despite the upgrade on Tuesday, the stock declined by around 0.7% after initially moving higher. At the time of writing on Wednesday, it is down around a further 0.8%.

Berenberg, which lifted its target for the stock to 2,400p from 2,100p a share, told investors that the time is now right to lift its rating for the stock.

They noted that as well as the increased confidence, they “also have more certainty on the business’s leadership, following a period of management change.”

The management change included the hiring of a new permanent CEO, which was an internal appointment of someone who knows the business well. The company also appointed a new head of Injectables and US Generics.

Hikma continuing to maintain a strong balance sheet was another factor cited in the upgrade thesis, with the firm noting that leverage is at 1.3x, while there is $1.5 billion available for further merger and acquisition deals if needed following the recently announced Xellia Pharmaceuticals deal.

Berenberg also thinks that “the returns Hikma offers are excellent, with return on invested capital averaging 16% over the last three years.”

They concluded: “In this context, the valuation of 11.8x price-to-earnings does not look demanding, in our view.”