Reckitt shares get warm welcome from analysts, but RBC says they’re overvalued

Reckitt Benckiser PLC (LON:RB.) got a very warm welcome from City analysts after its strong first half results.

Share price targets were raised by all the analyst covering the stock as the consumer goods giant closed the previous day at 7,800p, with the highest being Barclays upping to 9,400p from 9,000p and keeping its overweight rating, the same rating as JPMorgan Cazenove, which hiked to 9,000p from 8,000p.

Berenberg and UBS, which both have buy ratings on the stock, respectively lifted their targets to 9,000p and to 8,600p, from 8,000p and 8,400p.

Jefferies kept its hold recommendation but upped its target to 7,100p from 6,600p, while Credit Suisse stayed at neutral but lifted its TP to 7,200p from 7,000p.

Naysayer RBC Capital Markets persisted with its underperform rating but hiked its target to 6,400p from 6,300p.

Interim results from RB showed 10.5% like-for-like sales growth in the second quarter, a considerable beat to the consensus forecast of 7.8%, driven by a 650 basis point beat from the Hygiene segment and 830bps in Other Health.

First-half underlying profit (EBIT) margin increased by 90bps to 24.5%, 195bps above the consensus.

Management said they plan to reinvest an additional £200mln in the business above the original rejuvenation plan, with the expanded investment plan including support for new and additional opportunities such as increased demand for disinfectants, the acceleration of e-commerce and further development of the new professional services unit.

The sceptical analysts at RBC acknowledged that Reckitt's operational capacity and culture are improving but still feel the share price is over-valued in the medium term.

“As current tail winds moderate, notwithstanding a long term improvement in some hygiene categories' growth, we expect the shares' over-valuation will become more evident,” was the crux of RBCs argument.

More positive UBS analysts said the “strong H1 beat and conservative guidance leave ample scope for further positive earnings surprises”.

Those at Berenberg were of a similar mind, saying managements estimate of a 5-6% COVID-19 headwind to 2021 LFL sales growth, “will leave room for further LFL sales growth upgrades over the next 12-18 months”.

The Berenberg analysts were “pleasantly surprised” by management's disclosure of a 2020 outlook fRead More – Source

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