Is Hikma Pharmaceuticals plc the best FTSE 100 healthcare stock to own after today's update?

Hikma Pharmaceuticals

When it comes to FTSE 100 healthcare stocks, many investors flock to the two largest companies GlaxoSmithKline(LSE: GSK) and AstraZeneca (LSE: AZN).

And with their formidable dividend yields, these two giants have delivered excellent shareholder returns in recent years and are often seen as core holdings for income investors. However, for investors seeking growth rather than income, there's a new arrival to the FTSE 100 healthcare sector that looks to be growing at a much faster rate.

It's Hikma Pharmaceuticals (LSE: HIK) and with the healthcare specialist reporting interim results today, let's compare it to its peers and look at whether the growth story is still intact. 

Super growth

Based in Jordan, Hikma operates across three broad divisions; generic, branded and injectable medicines, and sells its products in the US, Europe and the MENA region.

A newcomer to the FTSE 100 last year, Hikma's market cap of £5.5bn is significantly smaller than GlaxoSmithKline (£81.5bn) and AstraZeneca (£63.9bn). But don't be put off by size. While revenue growth at GlaxoSmithKline and AstraZeneca has stalled in recent years with three-year revenue falls of 3% and 3.9% a year respectively, Hikma has enjoyed strong revenue growth of 9.6% annually in the same time.

And while Hikma's dividend yield of just 1.1% is much smaller than GlaxoSmithKline's (4.8%) and AstraZeneca's (4.2%), when it comes to total shareholder returns, the smaller company has left its larger rivals in the dust over the last five years, returning 31% annually against 12% and 19%.

Profit warning

While Hikma's share price spiked after Brexit, a profit warning on 4 August saw the share price fall almost 20%. Hikma said revenues from its generics division was lower in the first half of the year than previously expected due to slower approvals of new products from last year's Roxane acquisition. With the profit warning fresh in investors' minds, the market will have been eagerly awaiting the company's interim results. 

Interim results

Unsurprisingly, Hikma's interim results this morning reveal a mixed performance. Revenue has continued to grow strongly with the company reporting group revenue of $882m, up 24% (28% in constant currency) on H1 2016.

However core operating profit was $176m, down 14% (or 3% constant currency) due to a lower contribution from the generics business. And group core basic earnings per share fell 32% (21% constant currency) to 48.2 cents.

While the profit and earnings numbers don't read particularly well, the company did manage to launch 44 new products during the period and received 182 approvals, expanding and enhancing the product portfolio.

And with the company pre-announcing on 4 August, it appears that any weakness in earnings was largely priced-in, with the share price barely moving this morning.

Long-term growth story intact

Do today's numbers change the long-term growth story? Not for me.  

After significant acquisitions in the last two years, 2016 was always going to be a transitional year and the recent weakness in profits will hopefully be nothing more than a short-term hiccup. With the company having confidence in its product pipeline, I believe Hikma is worth a look for investors with a higher risk tolerance and any further weakness in the share price could provide a good long-term buying opportunity.

Trading on a P/E ratio of 26.6 times next year's earnings against 17.3 and 16.2 for GlaxoSmithKline and AstraZeneca, Hikma isn't cheap, but this an exciting company that offers excellent growth prospects for long-term investors.

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Edward Sheldon owns shares in GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca and Hikma Pharmaceuticals. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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