Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.
Today I’m looking at Reckitt Benckiser (LSE: RB) to ascertain if its share price has the potential to push higher.
Current market sentiment
The best place to start assessing whether or not Reckitt’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.
At present, it would appear that the market is upbeat about Reckitt’s future prospects, as the company’s defensive nature means that sales and profits are likely to remain strong, despite global geopolitical events and economic instability.
What’s more, Reckitt’s plans for growth have impressed investors as management seeks to manoeuvre the business towards the high-margin consumer health market and away from low-margin consumer products.
Upcoming catalysts
Indeed, Reckitt’s management is keen to focus on the company’s 19 “power brands”, which are sold in almost 200 countries and including household staples such as Finish dishwasher tablets and Gaviscon heartburn remedy. These investment plans and Reckitt’s strategy shift are likely to be the company’s main catalysts going forward.
Other growth initiatives include acquisitions and spin offs. For example, Reckitt acquired the K-Y brand of sexual lubricants from Johnson & Johnson in March, a move designed to build its presence in the sexual health market.
Additionally, Reckitt is considering a spin off of its pharmaceuticals division, which management put under strategic review in October. Reckitt’s pharmaceutical arm produces the Suboxone heroin substitute.
Still, aside from acquisitions there are few catalysts that are likely to affect Reckitt going forward, apart from the company’s half-year results, which are scheduled to be released around the middle of July.
Reckitt’s half-year results should show investors how the company’s acquisition plan is progressing and management is likely to update the market on the company’s acquisition strategy going forward.
Valuation
Due to Reckitt’s defensive nature, investors are prepared to pay a premium for the company’s shares. Reckitt trades at a historic P/E of 17.7 compared to the wider FTSE 100, which trades at a P/E of 13.6.
However, in my opinion, Reckitt’s premium over the wider market is warranted as the firm’s position within the consumer health market, means that the company is throwing off more cash than it knows what to do with.
Net cash from operating activities rose more than 12% last year, to £2.1bn giving the company money to grow the business or return to shareholders. With this much cash being generated by the company, it’s likely that Reckitt will be around for some time to come and growth will continue.
Foolish summary
So overall, I feel that there is still time to buy Reckitt Benckiser.
