HSBC upgrades Reckitt Benckiser to ‘buy’

HSBC upgraded Reckitt Benckiser on Wednesday to ‘buy’ from ‘hold’ and lifted the price target to 5,500p from 4,800p as it took a look at the outlook for consumer staples next year.

The bank said Reckitt endured a difficult 2024 with the shares affected by a mix of operational challenges and adverse verdicts in several trials surrounding links between pre-term infant milk formula and necrotising enterocolitis (NEC, an intestinal illness affecting pre-term infants).

"However, we feel that the operational challenges were rather one-off in nature and, excluding these, the underlying performance of its Health & Hygiene business has been quite robust," it said.

"Recent months have also seen more favourable developments on the litigation front with one verdict in Reckitt’s favour and also a slowing in the pipeline of new cases, which give us more confidence that even if Reckitt does end up settling, the amount would be manageable."

In 2025, HSBC expects the Health and Hygiene businesses to deliver growth of a similar level to 2024 while Nutrition will benefit from easy comparatives.

It also expects good strategic progress with the plans to separate Essential Home and Mead Johnson.

"On our updated 2025 numbers Reckitt trades on a price-to-earnings of 14.2x, which is material discount to peers, and offers good scope for re-rating as the group executes on its plans," HSBC said.

At 0930 GMT, the shares were up 1.2% at 4,758p.