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On Thursday, Berenberg analysts cut the stock rating of Rentokil Initial Plc (LON:RTO:LN) (NYSE: RTO) from Hold to Sell, adjusting the price target to £3.00 from the previous £3.65. The change reflects growing concerns over the company’s risk-reward balance and operational challenges, particularly within its North American operations. The pest control company, currently valued at $11.5 billion, has seen its stock decline significantly over the past three months, according to InvestingPro data.
The downgrade is attributed to several factors, including the current search for a new North America CEO and group CEO, signaling potential difficulties in the company’s U.S. Pest turnaround efforts. Berenberg’s analysis indicates that the quality of recurring revenue from the U.S. Pest segment has weakened in the first quarter, with one-time jobbing revenues previously bolstering results. Despite these challenges, InvestingPro data shows the company maintains impressive gross profit margins of 84% and remains profitable over the last twelve months. Subscribers can access 4 additional key insights about Rentokil’s financial health.
The analysts at Berenberg also noted a significant shift in Rentokil’s strategy concerning store numbers and branding. They caution that while there could be an upside from further activism and special situations-related sales or spin-offs, the likelihood of earnings risk and a decline in earnings quality is more concerning.
These factors have led Berenberg to position their earnings per share (EPS) estimates for Rentokil 6-15% below the consensus, underpinning their decision to recommend an Underperform rating for the stock. The revised price target of 300p represents a notable decrease from their former target, underscoring the analysts’ bearish outlook on the company’s financial prospects.
In other recent news, Rentokil Initial has been the subject of several notable developments. Deutsche Bank (ETR:DBKGn) adjusted Rentokil’s stock price target downward to GBP4.65 from GBP4.85, maintaining a Buy rating. This revision follows Rentokil’s fiscal year 2024 results and guidance for the first quarter of 2025, which indicated disappointing revenue expectations in North America due to operational challenges. Meanwhile, Bernstein SocGen downgraded Rentokil’s rating from ’Market Perform’ to ’Underperform’, citing concerns about leadership and strategic direction in the North American market. The downgrade was accompanied by a reduced price target of GBP3.00, reflecting challenges in the US Pest division and reliance on one-time jobbing revenues. Additionally, Rentokil announced that CEO Andy Ransom plans to retire by the company’s annual general meeting in 2026, with a search for his successor already underway. These developments highlight the company’s ongoing efforts to navigate operational challenges and leadership transitions while seeking strategic growth opportunities.
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