Inverted H&S points to a strong rebound

Haleon (LON: HLN) share price tilted upwards on Tuesday after the company published mild financial results. The stock rose to a high of 267p, which was slightly above Friday’s low of 260p. It has a market cap of over 24 billion pounds, which is about 18% below its all-time high.

Haleon earnings review

Haleon is a large company in the consumer health industry. It is a spin-off of GlaxoSmithKline and Pfizer, two of the biggest companies in the world. 

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

The company manufactures some of the best-known brands in its industries like Centrum, Sensodyne, Panadol, and Advil among others. 

Haleon had a strong performance in the first half of the year. Its revenue rose to £5.2 billion while its organic growth was 11.6%. Adjusted profit rose to £1.2 billion while its free cash flow rose to £0.6 billion. 

Most of this revenue growth was due to higher volume and 3.7% of it was due to price adjustments. By segments, respiratory health revenue rose by 47% while VMS and pain relief rose by 12%. Its important oral health division saw its revenue rise by 5% to £1.4 billion. This revenue growth was evenly spread across its key regions.

Some analysts believe that Haleon share price is severely undervalued. For one, the company is now valued at about £24 billion. As we wrote at the time, GSK turned down a £50 billion acquisition bid for Haleon. Therefore, buying it at a £24 billion valuation implies a 50% discount. 

A closer look at other valuation metrics shows that the company is undervalued. According to SeekingAlpha, the firm trades at 13.5x 2023 earnings estimates. This is significantly lower than peer companies like Unilever and P&G. 

Another reason why Haleon makes a good buy is how spin-offs perform. Historically, spin-offs tend to outperform their parent companies.

Haleon share price forecast

Another reason why the HLN stock price is set to rebound is based on technicals. As shown in the chart above, the stock has had a difficult period as a publicly traded company. Recently, however, the stock has bounced back modestly.

The shares have also formed an inverted head and shoulders pattern, whose neckline is at 271p. It has also moved slightly above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved above the neutral point.

Therefore, the stock will likely have a bullish breakout in the coming days. If this happens, the next key resistance level to watch is at 300p.