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Investing.com -- Bernstein Research has issued a double upgrade of Rentokil Initial (LON:RTO) to “outperform” from “underperform,” setting a new price target of 570p, up from 313p, citing improving signs of organic revenue growth and a stronger outlook for profitability.
Shares of the exterminating and pest control services company were up 2.2% at 05:11 ET (09:11 GMT).
The brokerage pointed to structural improvements in Rentokil’s pest control business and cost efficiency initiatives under CFO Paul as key drivers behind the change in recommendation.
The brokerage said Rentokil’s organic growth is showing signs of recovery, supported by improved customer retention and better marketing execution.
It expects organic growth in the range of 3%-5%, aided by retention gains of roughly 2 percentage points, and a pickup in contracted revenues following improvements seen in the second quarter of 2025.
Industry data also pointed to an acceleration in pest control hours worked in July, reflecting improving market conditions.
Bernstein flagged that Rentokil’s North America Pest Control division, previously affected by post-merger integration issues with Terminix, recorded 1.3% contract revenue growth in Q2 FY25, compared to a 1.7% decline in 1Q25, suggesting an early turnaround.
Retention in the U.S. improved to 80.3% in the first half of 2025, up from 79.3% a year earlier.
The analysts also pointed to significant cost and cash levers available to management.
The company has targeted reducing its 2024 inflation-adjusted cost base by $100 million, focusing on near-shoring, outsourcing, and offshoring non-core functions.
The sale of the French Workwear business is expected to save about $100 million in capital expenditure, with further potential for efficiency gains through tighter working capital management and supplier consolidation.
Free cash flow conversion, which had lagged peers, is expected to improve from 37% of adjusted EBITDA in 2024 to 54% by 2028, while return on invested capital is forecast to rise from 9.1% in 2025 to 12.3% by 2028.
Bernstein increased its adjusted EPS forecast by 4% for FY25 and 16% for FY26, placing it 5% ahead of consensus for FY26. The adjusted P/E multiple for FY26 was estimated at 20.1x, falling to 17.4x for FY27, reflecting improved earnings visibility.
The analysts raised their valuation multiple for Rentokil’s pest control business to 19x EV/EBITA, a 50% discount to Rollins, from 14x previously, and increased Hygiene and Wellbeing to 13x.
The analysts added that upside momentum is building and investors may begin to revalue Rentokil’s pest control operations as early progress becomes evident.