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Reckitt Benckiser Group PLC RKT

Morningstar Rating
GBX 4,363.00 −11.00 (0.25%)
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Company Report

Reckitt Benckiser: Revenue Growth Ahead of Expectations; Shares Cheap Amid Litigation Uncertainty

Wide-moat Reckitt Benckiser reported first-quarter like-for-like revenue growth of 1.5%, significantly ahead of the 0.9% decline expected in the company-compiled consensus. The main driver of the delta was the nutrition segment for which the drop in sales was milder than previously expected, reporting a 9.9% decline compared with a 14.5% consensus decline. The segment is lapping the peak level of market share recorded in the prior year on account of the infant formula supply challenges faced by narrow-moat Abbott as well as the retail inventory buildup in the first quarter of last year. With a good start to the year, management reaffirmed the full-year 2024 outlook for 2% to 4% like-for-like sales growth, which now looks achievable given that the comparison base for the nutrition segment will get easier as the year progresses. The guidance is aligned with our forecast which sits toward the lower end of the range, and we confirm our GBX 6,700 fair value estimate. The share price was up around 5% in intraday trading given the revenue beat. Still, we think the stock remains significantly undervalued, trading at less than 14 times 2024 earnings. We believe the weakness can be primarily attributed to the uncertainty around the potential liability the group could face in the legal proceedings concerning its premature milk formula products. The share price is down almost 20% since mid-March when an Illinois jury awarded USD 60 million to a mother whose preterm baby died from necrotizing enterocolitis complications allegedly linked to the consumption of the company's Enfamil premature formula. We believe that the impact on market capitalization is likely greater than any potential settlement the company might face down the line. Still, we expect the uncertainty around this situation will remain elevated for a prolonged period as additional state cases will commence in the fall, while a judgment on the appeal for the Illinois case and other federal cases should take longer.

Price vs Fair Value

RKT is trading at a 37% discount.
Price
GBX 4,250.00
Fair Value
GBX 7,776.00
Uncertainty
Medium
1-Star Price
GBX 2,284.00
5-Star Price
GBX 9,612.00
Economic Moat
Zslvv
Capital Allocation
Ssrygdbd

Bulls Say, Bears Say

Bulls

Reckitt’s portfolio is well positioned in categories with long-term structural growth potential.

Bears

The core infant nutrition segment will continue to dampen Reckitt’s growth potential given depressed birthrates in the U.S. Participation in the WIC program is increasingly expensive and potential contract losses could strongly affect revenue.

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News

Trading Information

Previous Close Price
GBX 4,374.00
Day Range
GBX 4,319.814,411.00
52-Week Range
GBX 4,102.646,570.00
Bid/Ask
GBX 4,362.00 / GBX 4,364.00
Market Cap
GBX 3.08 Tril
Volume/Avg
1.3 Mil / 3.3 Mil

Key Statistics

Price/Earnings (Normalized)
9.38
Price/Sales
2.09
Dividend Yield (Trailing)
4.40%
Dividend Yield (Forward)
4.40%
Total Yield
4.92%

Company Profile

Reckitt Benckiser was formed in 1999 through the merger of the British firm Reckitt & Colman and Dutch-based Benckiser. Recently rebranded under the corporate name Reckitt, it sells a portfolio that includes a variety of household and consumer health brands, such as Lysol, Finish, Durex, and Mucinex, many of which hold the number-one or -two positions in their categories globally. Reckitt has repositioned its portfolio and has entered the infant formula market through the acquisition of Mead Johnson in 2017, expanded its consumer health presence by acquiring Schiff Nutrition, K-Y, and Biofreeze, and has exited the food industry. The firm operates in 60 countries and sells products in more than 200, generating around 35% of sales from emerging markets.
Sector
Consumer Defensive
Industry
Household & Personal Products
Stock Style Box
Large Core
Total Number of Employees
40,000

Competitors

Valuation

Metric
RKT
PG
UL
Price/Earnings (Normalized)
9.3824.8916.47
Price/Book Value
3.597.796.01
Price/Sales
2.094.781.89
Price/Cash Flow
11.2919.8314.59
Price/Earnings
RKT
PG
UL

Financial Strength

Metric
RKT
PG
UL
Quick Ratio
0.400.400.51
Current Ratio
0.640.640.76
Interest Coverage
9.0020.669.28
Quick Ratio
RKT
PG
UL

Profitability

Metric
RKT
PG
UL
Return on Assets (Normalized)
8.60%13.82%8.54%
Return on Equity (Normalized)
26.61%35.61%35.06%
Return on Invested Capital (Normalized)
14.24%20.62%13.94%
Return on Assets
RKT
PG
UL
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