JP Morgan upgrades Reckitt Benckiser, sees scope for M&A in medium-term
JP Morgan has upgraded its view on shares of Reckitt Benckiser, with its analysts pointing to potential upside in the firm's earnings per share in fiscal year 2020 and the potential for shifts in the company's portfolio of assets to unlock value.
FTSE 100
7,877.05
17:14 18/04/24
FTSE 350
4,334.00
17:14 18/04/24
FTSE All-Share
4,290.02
16:54 18/04/24
Household Goods & Home Construction
12,423.35
17:14 18/04/24
Reckitt Benckiser Group
4,139.00p
17:15 18/04/24
After running various scenario analyses, JP Morgan concluded that the shares' valuation could range between 6400p and 9000p.
Yet in any case, the 6% reduction in the analyst consensus for Reckitt's EPS in 2018 over the past six months meant there was now scope for "short-term relief" to 7500p.
Indeed, that was now the broker's new target price, versus 6,900p previously.
In parallel, JP Morgan upgraded its recommendation on the shares from 'neutral' to 'overweight'.
Regarding the outlook for earnings, JP Morgan believed Reckitt could return to like-for-like growth of roughly 3% - in-line with its peers - from the fourth quarter of 2017.
However, the analysts conceded there was some uncertainty surrounding the 'timing' of savings from the acquisition of Mead and potential additional costs in the Home/Hygiene division. That might weigh on the company's EPS in fiscal year 2018.
On the other hand, JP Morgan said it saw upside of between 5% and 8% when looking out to fiscal year 2020.
As far as potential M&A transactions were concerned, JP Morgan believed a sale of the Home/Hygiene arm was one possibility.
Another was increased M&A linked to its Health and Nutrition division or even carving it out as a standalone business.
"While the top end of our valuation range is likely to be weighed on the progress of M&A/disposals on a 12-18 month basis, we see a short term relief potential to £75, hence our upgrade to Overweight."