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On Thursday, JPMorgan analysts downgraded Bunzl (OTC:BZLFY) Plc. (BNZL:LN) (OTC: BZLFY) stock rating from Overweight to Neutral, adjusting the price target to GBP27.00 from the previous GBP35.00. The revision follows the firm’s analysis of the company’s earnings and potential challenges ahead. The stock has experienced significant pressure, declining over 21% in the past week and nearly 35% over the last six months, according to InvestingPro data.
The downgrade was influenced by several factors, including Bunzl’s performance and earnings expectations, which are notably second-half weighted after the day’s earnings cuts. JPMorgan analysts reduced their forecast for Bunzl’s EBITA by 8%, citing execution issues in the company’s largest business segment, US grocery and foodservice. These issues contrast with Bunzl’s historical track record of strong execution. Despite current challenges, InvestingPro analysis shows the company maintains a ’GOOD’ overall financial health score, with particularly strong marks in profitability metrics.
JPMorgan expressed long-term support for Bunzl, highlighting its resilience, cash generation, and successful M&A track record. The analysts also noted the company’s strategy in the US own-brand market, which could potentially support profit in 2025E despite current volatility. However, they pointed out that the current trading range of the stock is low, and the broader range of potential outcomes presents increased uncertainty for investors.
Additionally, the pause in Bunzl’s share buyback program and the possibility of reduced M&A spending were identified as factors that could negatively affect the investment case. While these measures might be temporary, they are seen to skew the risk/reward balance.
In their report, JPMorgan analysts explained the change in their valuation methodology for Bunzl, which led to the reduced target price of 2,700p, down from 3,500p. The downgrade to a Neutral rating reflects a more cautious stance on the stock due to the aforementioned concerns and uncertainties.
In other recent news, Bunzl Plc has seen a series of analyst upgrades, reflecting positive sentiment towards its future performance. Stifel has upgraded Bunzl’s stock from Hold to Buy, with a new price target of GBP35.00, citing the company’s strong balance sheet and resilient product offerings. Barclays (LON:BARC) also lifted Bunzl’s rating from Equalweight to Overweight, raising the price target to GBP36.50, based on expectations of improved conditions and growth in volumes. Deutsche Bank (ETR:DBKGn) joined in, upgrading Bunzl to Buy with a price target increase to GBP34.75, highlighting the company’s potential for organic growth in fiscal year 2025.
Bernstein SocGen, while reducing the price target to £37.00 from £40.00, maintained an Outperform rating, emphasizing Bunzl’s potential for earnings per share growth through margin improvements and mergers and acquisitions. Analysts noted that deflationary pressures are easing, with stabilization in key raw material prices, which could support Bunzl’s financial performance. Bunzl’s strategic positioning is expected to benefit from cost-saving measures and increased penetration of its own-brand products in the United States. Additionally, the company has significant headroom for mergers and acquisitions, with over GBP900 million available for strategic investments. These developments signal a cautiously optimistic outlook for Bunzl as it navigates the current economic landscape.
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