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RBC Capital lowered its price target on Rentokil Initial Plc. (LON:RTO:LN) (NYSE:RTO) to GBP4.40 from GBP4.50 on Tuesday, while maintaining an Outperform rating on the pest control company’s stock. Currently trading at $23.80, the $12 billion market cap company shows impressive gross profit margins of 84%, according to InvestingPro data.
The price target reduction reflects RBC’s updated forecasts following Rentokil’s French Workwear disposal, which the firm expects will impact FY26E earnings per share by approximately 4%. InvestingPro analysis suggests the stock is currently undervalued, with analysts setting price targets between $28 and $32.
RBC Capital noted that Rentokil currently operates in "somewhat of a vacuum" with challenging second-quarter trading conditions expected to persist in North America, an upcoming CEO announcement, and uncertainty around the company’s revised TMX integration plan.
Despite these near-term challenges, RBC remains optimistic about Rentokil’s long-term prospects, stating that the company’s issues are "fixable" with "significant re-rating potential over time."
The firm maintained its Outperform rating on Rentokil stock, citing a lack of large-cap value opportunities elsewhere in the sector as part of its investment thesis.
In other recent news, Rentokil Initial has experienced a series of developments that are noteworthy for investors. Analysts from Berenberg and Bernstein SocGen have downgraded Rentokil’s stock rating, citing concerns over leadership and strategic direction, particularly in North America. Berenberg adjusted its rating from Hold to Sell, while Bernstein SocGen moved from Market Perform to Underperform, both setting a new price target of £3.00. These downgrades are influenced by challenges in the U.S. Pest segment and the search for new leadership roles, including North America CEO and group CEO.
Additionally, Rentokil’s current CEO, Andy Ransom, announced his plan to retire by 2026, with the company already initiating the search for his successor. This announcement is part of Rentokil’s long-term strategic planning, ensuring a smooth transition. Analysts have expressed concerns over the company’s earnings quality, noting a reliance on one-time revenues and a shift in strategy regarding store numbers and branding. These factors have led to earnings per share estimates being 6-15% below consensus, reflecting a cautious outlook on the company’s financial health.
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