HSBC upgrades Reckitt Benckiser to 'buy'
HSBC upgraded on Wednesday to 'buy' from 'hold' and lifted the price target to 5,500p from 4,800p as it took a look at the outlook for consumer staples next year.
The bank said Reckitt endured a difficult 2024 with the shares affected by a mix of operational challenges and adverse verdicts in several trials surrounding links between pre-term infant milk formula and necrotising enterocolitis (NEC, an intestinal illness affecting pre-term infants).
"However, we feel that the operational challenges were rather one-off in nature and, excluding these, the underlying performance of its Health & Hygiene business has been quite robust," it said.
"Recent months have also seen more favourable developments on the litigation front with one verdict in Reckitt's favour and also a slowing in the pipeline of new cases, which give us more confidence that even if Reckitt does end up settling, the amount would be manageable."
In 2025, HSBC expects the Health and Hygiene businesses to deliver growth of a similar level to 2024 while Nutrition will benefit from easy comparatives.
It also expects good strategic progress with the plans to separate Essential Home and Mead Johnson.
"On our updated 2025 numbers Reckitt trades on a price-to-earnings of 14.2x, which is material discount to peers, and offers good scope for re-rating as the group executes on its plans," HSBC said.
At 0930 GMT, the shares were up 1.2% at 4,758p.
Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.