Jefferies upgrades Reckitt Benckiser to ‘hold’

It noted the shares are down 23% year-to-date after a disappointing FY23 and "shock" US litigation risk.

Jefferies said the increased price target mostly reflects a reduced assumption on US litigation liability risk, related to NEC in premature babies and the alleged association of infant formula usage and negligent practices by some suppliers. NEC is a serious gastrointestinal problem that mostly affects premature infants.

"This is in part prompted by the formal stance taken by the NEC Society last week, which advises that recent litigation outcomes ‘may result in unintended harmful consequences for babies & elimination of potentially beneficial therapy choices’," it said.

In the short term, Jefferies said it still considers some downside risk with 1Q24 sales. However, it said that at current levels, downside on the stock seems contained.

"Our 2026/27 estimates are cut (circa 3% at EPS) on an accelerated rebasing of margin expectation," it said. "We continue to see an op margin of 20-21% (versus 2023 23.1%) as more viable mid-term, if we are to see more consistent/sustained sales growth.

"Persistent uncertainties on strategy & litigation remain for the next 12 months. However, the skew to downside risk is more firmly established in the price. The company now has an opportunity to take control of some ambiguities, and set the investment case on an improved footing - so we move to hold."