Reckitt (RKT – Research Report), the Consumer Defensive sector company, was revisited by a Wall Street analyst today. Analyst Iain Simpson from Barclays downgraded the rating on the stock to a Hold and gave it a £53.60 price target.
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Iain Simpson has given his Hold rating due to a combination of factors impacting Reckitt’s current and future financial positioning. While Reckitt’s valuation appears optically undemanding when considering its price-to-earnings ratio relative to its peers, the anticipated transformation plan presents significant execution risks. The expected flat earnings per share until 2027, coupled with the transformation, leaves Reckitt’s valuation in line with other large-cap European companies, but with added uncertainties.
Simpson acknowledges that the strategic changes and leadership at Reckitt display commitment to shareholder value and operational improvement. However, the transformation involves substantial changes, such as restructuring the business units and cost efficiency programs, which may lead to a 15% dilution in earnings assuming perfect execution. The potential for execution pitfalls and EPS dilution suggests that maintaining a cautious stance is prudent, hence the Hold rating.