JPMorgan reiterates 'Neutral' for Reckitt, raises TP to 6000 Pence

JPMorgan Cazenove reiterates its 'Neutral' rating for Reckitt Benckiser, raising the target price from 5500p to 6000p.

After a slow start to the year due to COVID-induced distortions, the consumer health and hygiene products maker is back on track as the market recovers towards pre-COVID levels," they explained.

Q3 Outlook

JPMorgan predicts a Q3 sales increase of 3.3%, ahead of expectations, with EBIT and EPS also coming in above estimates, though EBIT margins are anticipated to be flattish year-over-year.

They anticipate that strength in Health will be offset by a decline in Hygiene, with the latter impacted by a strong Q3 2021 comparison.

Valuation

The analysts believe that Reckitt is trading at a reasonable valuation, with a forward EV/EBIT multiple of 15.8x, in line with its global peers (16.2x).

On a relative basis, they think Reckitt is undervalued compared to peers, trading at a discount of 30% on a P/E basis and 15% on an EV/EBIT basis.

Risks

They consider the major risks to their forecasts to be ongoing macroeconomic uncertainties, particularly in emerging markets, as well as potential competitive intensity in key markets, and the possibility of further COVID-19-related disruptions.

Overall, JPMorgan remains positive on Reckitt's long-term prospects, but they believe the current valuation reflects these expectations, hence the 'Neutral' rating.