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On Wednesday, Barclays (LON:BARC) reiterated its Equalweight rating on Reckitt Benckiser (LON:RKT:LN) (OTC: RBGLY), a $43.91 billion consumer goods company with a "GOOD" financial health rating according to InvestingPro, with a price target of £53.60. The company currently trades below its Fair Value, suggesting potential upside opportunity. The reaffirmation follows recent news regarding the potential sale of Reckitt’s Essential Home division. Reports have surfaced naming private equity firms Advent, Lone Star, and Apollo as possible bidders for the assets, with estimated offers reaching up to £5 billion, although some bids were noted to be lower. The company maintains impressive gross profit margins of 60.56% and has consistently paid dividends for 33 consecutive years, demonstrating strong operational efficiency and shareholder commitment.
This valuation marks a decrease from previous expectations reported on September 18, 2024, which suggested the division could sell for more than £6 billion. Reckitt Benckiser had announced its intention to sell the Essential Home business during its first-half 2024 results and aims to finalize an agreement within the year. InvestingPro subscribers have access to additional insights, including 7 more ProTips and detailed financial metrics that could help evaluate the impact of this strategic move.
The sale of the Essential Home division is viewed as a strategic move for Reckitt but is anticipated to have a significant impact on earnings per share (EPS). Barclays analysts had previously downgraded Reckitt’s stock on February 4, citing underappreciation by investors of the forthcoming EPS dilution as a result of the company’s strategic changes. The projected EPS for 2027 stands at £3.50, which falls within the range of £3.13 to £3.79 but is 15% below Barclays’ base case and 11% below the consensus.
Barclays’ analysis indicates that each £200 million adjustment in the Essential Home sale price could lead to a 0.4% fluctuation in Reckitt’s EPS. Therefore, a sale price of £4.85 billion, as suggested by current press coverage, would imply an EPS dilution of approximately 17%, rather than the previously estimated 15%.
In other recent news, Reckitt Benckiser Group PLC has been the subject of an updated analysis by RBC Capital Markets. The firm has raised its stock target for the multinational consumer goods company to £57.00, maintaining an Outperform rating. This adjustment is based on anticipated operational changes and developments in legal cases involving Reckitt Benckiser.
RBC Capital Markets predicts cost duplications as the company prepares to divest its Essential Health and Mead Johnson Nutrition businesses. Despite concerns about historical underinvestment potentially leading to margin decline and cash flow stagnation, the firm sees the transition to ’Core Reckitt’ as a positive move. This shift is expected to enhance management focus and streamline operations.
Additionally, RBC Capital Markets has noted that litigation concerns related to the NEC (Necrotizing Enterocolitis) have lessened following a favorable outcome in the Whitfield case, which included Reckitt Benckiser as a defendant. The firm’s valuation of Reckitt Benckiser shares suggests that they are currently undervalued, based on an Adjusted Present Value (APV) methodology and a sum-of-the-parts analysis. These recent developments reflect the ongoing strategic shifts within Reckitt Benckiser.
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