On Wednesday, HSBC upgraded Reckitt Benckiser (LON:RKT:LN) (OTC: RBGLY) stock from Hold to Buy, raising the price target from GBP48.00 to GBP55.00.
The upgrade comes after a challenging year for the company, which saw its shares impacted by operational issues and legal trials related to its infant milk formula. Despite these difficulties, HSBC believes the company's core Health & Hygiene business remains strong.
Reckitt Benckiser faced a series of trials in 2024, examining the alleged connection between its pre-term infant milk formula and necrotising enterocolitis (NEC), an intestinal disease in pre-term infants.
However, recent months have shown a more positive turn with a favorable verdict for Reckitt and a slowdown in new cases. This development has provided HSBC with increased confidence in Reckitt's ability to manage potential settlement costs.
The analyst from HSBC noted that excluding the one-off operational challenges, Reckitt's Health & Hygiene division has shown robust performance.
Looking ahead to 2025, the analyst expects this trend to continue, with growth anticipated to be on par with 2024 levels. Additionally, the Nutrition business is predicted to improve due to favorable comparisons to the previous year.
Further strategic progress is expected as Reckitt Benckiser plans to separate its Essential Home and Mead Johnson businesses. The analyst highlighted that based on the updated projections for 2025, Reckitt is trading at a price-to-earnings (PE) ratio of 14.2x.
This valuation is considered a significant discount compared to industry peers, suggesting potential for a positive re-rating as the company moves forward with its strategic initiatives.
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