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Home»Uncategorized»I think these 2 fast-recovering FTSE 250 pharma growth stocks could make you richer

I think these 2 fast-recovering FTSE 250 pharma growth stocks could make you richer

FTSE 100 pharmaceutical giants AstraZeneca and GlaxoSmithKline may dominate investors thoughts, but smaller players could also inject more excitement into your portfolio.

Funny pharm

Although FTSE 250-listedDechra Pharmaceuticals (LSE: DPH) is trading 213% higher than five years ago, it crashed last summer and still trades almost 25% lower than it did six months back. As Kevin Godbold reported at the time, the plunge came even as the company posted 14% revenue growth and 21% earnings growth.

The collapse was triggered by a management warning that a major US supplier is moving onto its patch in the UK and mainland Europe, upping competition. Today, theinternational veterinary pharmaceutical operatorissued an update for the six months to 31 December, which said trading was strong and in line with management expectations,with reported group net revenue up 18%. Europe and North America are both doing well, helped by the temporary market absence of a competitor product Zycorta in the US.

High synergy

The 2.37bn company has also completed its Brazilianacquisition Venco, while two other recent acquisitions are performing strongly, creating material synergies, and Brexit contingency preparations are progressing well.There was no mention of US competition, which may explain why the shares are down 0.7% today, despite many positives, in line with FTSE 250 slippage.

Dechra has regularly posted double-digit earnings growth in recent years and City analysts expect it to grow 14% this financial year and next. However, trading at a forecast valuation of 26.3 times earnings, you pay a price for success.

Dividend policy is progressive. Last year, payouts were hiked 19%, although it yields just 1.2%, with cover of 3.3. We may hear more about the US challenge when full-year results are published on 25 February. Right now, though, Dechra looks tempting.

Road to recovery

Generic drug specialistHikma Pharmaceuticals (LSE: HIK) has also struggled after suffering three successive annual drops in earnings (2015, 2016 and 2017), but now seems to be on the way back.

The FTSE 250 stock is up 56% in the last 12 months. City analysts calculate that earnings jumped 23% in 2018 and will rise 3% and 8% over the next couple of years. As Ed Sheldon sets out here, the group was forced to issue a series of profit warnings but has recovered strongly thanks to positive broker reports, upbeat trading updates, and increased guidance for its injectables and generics businesses.

Going anti-viral

Sadly, youve missed the best of the recovery (unless you listened to Ed), so whats the outlook today? Hikma still only trades at 15.3 times forecast earnings, so doesnt look overpriced. Again, this is a growth rather than dividend stock, although the yield of 1.9% has cover of 3.4.

Hikma is also winning new contracts, signing in January an exclusive licence to distribute one of Beijing Sciecure Pharmaceuticalsniche injectable anti-viral medicines across the US for a minimum eight years, with a two-year option to extend. Last month, itsUS subsidiary launched a generic equivalent to seizure treatment Lundbecks Onfi. This 3.83bn company is in fine form and worth considering, if you wish to inject a bit of growth into your portfolio.

Capital Gains

In the meantime, one of our top investing analysts has put together a free report called “A Top Growth Share From The Motley Fool”, featuring a mid-cap firm enjoying strong growth that looks set to continue. To find out its name and why we like it for free, click here now!


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