If, like me, you’re feeling under the weather, it might be comforting to know that you’re not alone. After nearly two years of limited social mixing, most restrictions are now lifted. Workers are commuting, face mask mandates are over, and family visits are back on. But the natural consequence is a resurgence of cold and flu viruses. And unfortunately it seems they’re back with a vengeance. However, there’s always a silver lining. For me, it’s this stock I’d buy now.
Reckitt Benckiser (LSE: RKT) has just posted much better-than-expected results, as demand for its brands, including Nurofen and Strepsils, has soared. In fact, its OTC (over-the-counter) “portfolio grew over 20% in the quarter, driven primarily by Mucinex sales, which benefited from a sharp improvement in cold and flu sales trends”.
Q3 results
Driven by high OTC demand, like-for-like sales rose 3.3% to over £3bn, while analyst consensus was an expected 0.7% drop. And full-year net revenue growth guidance is now up to between 1% and 3% year-on-year, compared to a Q2 estimate of between 0% and 2%. Encouragingly, the company has maintained its guidance on profit margins in the face of high inflation. But growth is expected to be slower than in 2020, when the global demand for cleaning products like its disinfectant brand Dettol saw revenue rise 12%.
However, with pubs, bars and nightclubs now all fully open, sales of its market leading Durex condoms brand also rose. The company said that “strong growth in intimate wellness continued, up mid-single-digits”. And as autumn turns to winter, the temptation of a warm pub surrounded by friends means punters will be more likely to need Reckitt Benckiser’s cold and flu remedies as well.
A stock to buy now?
At 5,946p, the Reckitt Benckiser share price is up 6% in just five days. But it’s down 13% from 6,852p earlier this year. And with a five-year average of 6,551p, I think there’s significant upside potential for the stock. But it’s worth noting that its dividend yield for the past three years has been around 2.8%. And the FTSE 100 average is predicted to be around 4.1% in 2021. Therefore, it needs to see significant share price growth to beat the index return (and inflation).
And of course, Reckitt Benckiser has the same pressures as the rest of the FTSE 100. In its Q3 report, it warned that raw materials had increased in price by 10% over the quarter. And if it wants to maintain the same profit margins, then the prices it charges will have to rise. CEO Laxman Narasimhan has said that “there will be another round of pricing we will take to offset the inflation”. And with a cost of living crisis currently escalating, some consumers may not feel able to justify spending significantly more on branded products.
But I think Reckitt Benckiser has such a large portfolio of widely used brands, that I’m confident it will be able to build on its latest performance. And I’m fairly sure that sales are going to rise in the short term. For me, it’s a stock to buy now. And my colleague, Christopher Ruane, agrees with me.
