Barclays has upgraded its rating on Haleon PLC (LSE:HLN, NYSE:HLN) after Zantac-related litigation in the US was dismissed, meaning it will not proceed to trial unless there is a successful appeal.
For Haleon, Zantac is "substantially derisked", leaving the shares "investible again for those without the appetite for pharma litigation risk", the bank said.
It lifted its share price target to 360p and upgrade to 'overweight' from 'neutral'.
The ruling by US district judge Robin Rosenberg in the Florida multi-district litigation (MDL), knocked out thousands of claims in federal court, though it does not directly affect tens of thousands of similar cases pending in state courts around the country, GSK, Haleon's former parent company, said in a statement on Wednesday morning.
In a 'Daubert ruling', she ruled that the evidence and experts submitted by plaintiffs does not meet required standards.
Barclays analysts said: "Our understanding is that Judge Rosenberg’s ruling only directly impacts the Federal MDL trial. There are some separate state level processes going on (most significantly in California, a JCCP starting 13 Feb in Oakland).
"However, states either follow the Daubert evidence standard or, in the case of California (and some others) the Frye evidence standard, which is broadly similar in terms of the scientific threshold before evidence is admissible."
On Haleon, the analysts said they now believe Haleon "merits a 15% PE discount" to the EU staples sector, compared to a prior 25% discount, "to reflect its high debt levels and some minor lingering Zantac risk (some state cases and the possibility of MDL appeal)".
Together with recent sector rerating, this is behind the lifting of the price target, which implies a 21% potential upside to yesterday’s close.
An upside case of 398p would be a 5% PE discount to EU staples peers, with the analysts saying Haleon’s "greater debt levels partially offset by superior margins and returns on capital, and would assume continued strong [overall sales growth] together with a full derisking of Zantac".