Barclays lifts Bunzl stock rating, raises price target to GBP36.50

On Monday, Bunzl (OTC:BZLFY) Plc. (BNZL:LN) (OTC: BZLFY) shares witnessed a positive shift following Barclays (LON:BARC)’ decision to upgrade the company’s stock rating from Equalweight to Overweight. The upgrade came with a new price target set at GBP36.50, increased from the previous target of GBP35.00. Trading at a P/E ratio of 19.8 and currently valued at $12.6 billion by market cap, the stock appears fairly valued according to InvestingPro Fair Value estimates. The change in rating and price target reflects Barclays’ anticipation of improving conditions for the company.

According to Barclays, several factors contribute to a brighter outlook for Bunzl. The firm noted that Bunzl’s volumes have been on an upward trend throughout the last year, with a particularly strong performance in the last quarter. This increase in volumes is expected to continue and support the company’s growth. InvestingPro data shows the company has maintained dividend payments for 46 consecutive years, with an impressive 35.7% dividend growth in the last twelve months, demonstrating strong financial discipline.

Analysts at Barclays also pointed out that while deflation has been an issue, it is showing signs of diminishing. They have reviewed key suppliers and raw material inputs, concluding that the pricing environment for 2025 is likely to be more stable. Specifically, pulp prices, which have been a significant factor in reducing profits for higher-margin product categories in Europe during the second half of the year, are forecasted to increase in the second and third quarters of 2025.

Furthermore, Barclays anticipates that the inventory buildup Bunzl has undertaken in anticipation of price rises will normalize by FY25, leading to improved free cash flow (FCF). The company is also expected to benefit from increased penetration of its own-brand products in the United States, which should enhance gross margins. In addition, cost-saving measures that are focused on Europe are projected to bolster profits in the second half of the year.

The analysis by Barclays suggests that the headwinds faced by Bunzl in FY24 are set to transform into tailwinds by the second half of FY25. This transition is expected to positively impact the company’s financial performance and contribute to its growth trajectory. With a healthy current ratio of 1.18 and strong free cash flow yield of 9%, InvestingPro analysis reveals 6 additional key insights about Bunzl’s financial health and growth prospects, available to subscribers.

In other recent news, Bunzl Plc has been the focus of several analyst updates. Deutsche Bank (ETR:DBKGn) upgraded Bunzl’s stock rating from Hold to Buy, increasing the price target from GBP34.00 to GBP34.75. This change was attributed to Bunzl’s consistent profit growth and the potential for organic growth in the fiscal year 2025. Meanwhile, Bernstein SocGen adjusted Bunzl’s price target down to £37.00 from £40.00 but maintained an Outperform rating. The analyst highlighted Bunzl’s strategy for expanding its EBITA margin and anticipated positive earnings momentum driven by margin improvements and mergers and acquisitions.

Additionally, Citi upgraded Bunzl’s stock rating from Neutral to Buy, keeping the price target at GBP37.00. This decision was influenced by the stock’s underperformance relative to the market since December and the broader market context of rising bond yields. Despite previous concerns about deflationary pressures, Citi now sees a potential 15% upside in Bunzl’s valuation. The recent upgrades by Deutsche Bank and Citi reflect a renewed confidence in Bunzl’s growth and profitability prospects amidst current market conditions.

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