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Investing.com -- J.P. Morgan in a note dated Thursday has cut its rating on Bunzl (OTC:BZLFY) to “neutral” from “overweight,” citing ongoing execution issues in its key North American business and a weaker earnings outlook. The price target was lowered to 2,700p from 3,500p.
The downgrade follows a profit warning largely attributed to internal missteps. Bunzl admitted that its shift from a branch-led model to a centralized structure in the US led to operational disruptions.
A high-margin contract loss in grocery distribution compounded the impact. “The majority of the profit warning was due to self-inflicted problems,” the company said on its earnings call.
J.P. Morgan analysts reduced their EBITA forecast by 8%, with adjusted EBIT expected to decline to £912 million in 2025 from £976 million.
Margins are projected to fall about 100 basis points in the first half, with full-year guidance implying flat performance in the second half.
Earnings per share are forecast to drop 7.4% to 178.96p. Bunzl’s own-brand strategy in North America, once seen as a growth driver, is now under scrutiny due to rising operating costs and delayed benefits.
The company has paused its buyback program, and analysts expect lower M&A activity near term.
While free cash flow is set to grow to £678 million and the dividend will rise to 77.60p, offering a 3.4% yield, capital returns appear restrained.
J.P. Morgan shifted its valuation approach from a discounted cash flow model to a 14x P/E multiple on its 2026 EPS estimate of 187.9p, citing “renewed uncertainty around execution and margin trajectory.”