Goldman upgrades Reckitt as emerging markets, new products drive growth

Investing.com -- Goldman Sachs upgraded Reckitt Benckiser to "buy" from "neutral" on Wednesday, saying the consumer health and hygiene group’s shares look cheap relative to its accelerating sales growth, and raised its 12-month price target to 6,500 pence from 5,600 pence.

The brokerage said Reckitt trades at 13.5 times expected 2027 earnings, a 16% discount to the European consumer staples sector based on consensus forecasts, compared with a 2% discount historically. It called this an attractive entry point.

Goldman expects sales growth at the company’s core business, which now makes up a larger share of the group after the Essential Home disposal, to reach about 5% over the medium term. It forecast group organic sales growth of about 4.5% in 2027 and 2028, up from 3.7% in 2026.

Emerging markets are the main driver, with Goldman forecasting growth of about 8% there. It also pointed to new products, including Mucinex 12 Hour Cold & Fever, and easier comparisons for cold and flu sales in North America and Europe following two soft seasons.

Goldman expects the group’s operating margin to reach about 26% in 2028 and about 28% in the longer term, helped by cost savings and higher sales. Reckitt is targeting fixed costs of below 19% of sales by the end of 2027, from 20.9% in 2024.

Free cash flow is expected to dip to £1.6 billion in 2026 before rising to £1.8 billion in 2027, as one-off restructuring costs and higher capital spending weigh.

Goldman said that still covers the dividend, which carries a yield of about 5%. Reckitt’s latest share buyback, at £500 million, was smaller than the three previous programmes of £1 billion.

Goldman raised its earnings per share forecasts for 2026, 2027 and 2028 by 0.1%, 3.7% and 5.5%, respectively.

Goldman said litigation over necrotising enterocolitis (NEC), a serious intestinal condition in premature infants, linked to the Mead Johnson infant formula business remains a concern for the stock.

It noted recent favourable rulings for Mead Johnson, including in the federal multidistrict litigation, and Abbott Laboratories’ settlement of about 2,000 cases for $670 million.

Goldman said Abbott’s decision may not apply to Mead Johnson, and that visibility on a resolution remains limited.

Goldman listed lower-than-expected sales growth, share losses from consumers trading down to cheaper products, weaker margins, currency swings and value-destroying acquisitions among the risks to its view.

Goldman Sachs said it does and seeks to do business with companies it covers, including Reckitt.

Original Article

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