Something’s changed in a good way for Reckitt in Q1, and the share price may be about to take off

With the Reckitt share price near 4,475p, is this a no-brainer stock? This long-time Fool takes a closer look at the first-quarter results!

| More on:
Abstract bull climbing indicators on stock chart

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A new broom looks like it’s sweeping clean, and the Reckitt (LSE: RKT) share price may be about to fly.

Chief executive Kris Licht arrived on the scene at the beginning of October 2023. So, with more than six months gone, today’s (24 April) first-quarter results update is a good point to assess progress.

Operational challenges

Before diving in, here’s a little context: the fast-moving consumer goods business has been struggling for the past few years. Earnings have been patchy, and the performance of the share price has been, well, yucky!

It’s no coincidence that the company’s fortunes took a downturn when it made one of those ‘transformational’ acquisitions so beloved of executives. The damage occurred in 2017 when Reckitt acquired Mead Johnson Nutrition – a US-based manufacturer of baby milk formula.

The price tag was a whopping $18bn – something of a digression from the company’s previous policy of building slowly with smaller, bolt-on acquisitions.

The move led to plenty of trouble for Reckitt. Some territories struggled with sales and profits. There’s been litigation threats, write-downs and other challenges.

Mead Johnson Nutrition hasn’t been Reckitt’s only source of lower earnings, but it does look like a deal to learn from and move on.

In with the new

The good news is that Reckitt has been doing exactly that. Kris Licht set out his stall with last October’s strategy update. The company said it aims to deliver “sustainable” mid-single digit like-for-like net revenue growth over the medium term.

Things started well for shareholders because the firm announced a £1bn share buyback programme to run for 12 months, which is ongoing now. The directors insisted Reckitt has a strong, well-invested business. A portfolio of “excellent” brands operate in attractive growth categories.

Licht’s fresh pair of eyes led to an upbeat assessment of the company’s prospects. So, are the firm’s investments in innovation, research & development (R&D), and the supply chain leading to ongoing growth?

Today’s figures are encouraging with positive like-for-like revenue growth in the first quarter for the Hygiene and Health categories. However, the Nutrition business – driven by baby milk formula – produced a decline of almost 10%. There’s still work to do in that category, and if management doesn’t focus on improvements here then this could weigh on the share price in the near future.

Licht was upbeat in the statement. After a period of price-led growth, the business is returning to a more balanced contribution from price, mix and volume. Volumes grew in many of the firm’s power brands in the quarter, including Lysol, Dettol, Durex and Finish. There was also good progress from the non-seasonal over-the-counter (OTC) portfolio.

Consistent dividends

My feeling is the enterprise may have passed its low point regarding performance. So the bottoming share price may be a decent opportunity for investors.

One big positive is the dividend. Despite the firm’s troubles, the directors didn’t cut or trim the shareholder payment since at least as far back as 2018.

With the share price near 4,475p, the forward-looking yield for 2025 is just below 4.75%. There are no guarantees of a successful investment outcome. But, to me, the yield looks like decent income from a business that might have just turned the corner.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

1 top Baillie Gifford investment trust I’d buy for my ISA and hold for decades

I reckon this FTSE 250 trust is poised to deliver strong returns in my ISA over the long run due…

Read more »

Top Stocks

8 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

A couple celebrating moving in to a new home
Investing Articles

1 FTSE 250 share I’m eyeing for June

Christopher Ruane looks at a FTSE 250 company in the retail sector and explains why he's sizing it up for…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

1 iconic FTSE 250 stock I’d snap up for my ISA in June

This Fool highlights a well-known FTSE 250 share that's served up some mouthwatering returns over the past decade.

Read more »

Investing Articles

Here’s my forecast for the Rolls-Royce share price in 2024

As it continues to hit new highs, everybody seems to be asking the same question: can the Rolls-Royce share price…

Read more »

Elevated view over city of London skyline
Investing Articles

Will the once massive Direct Line dividend ever get back to its old size?

Until last year, this income stock was a high-yield heavy-hitter. Could the Direct Line dividend ever get back to where…

Read more »

Investing Articles

£3,000 in savings? I’d start investing with a Stocks and Shares ISA

For investors with cash stashed away, this Fool thinks using a Stocks and Shares ISA is the best way to…

Read more »

Mature friends at a dinner party
Investing Articles

I’d buy shares of this investment trust for my SIPP while they’re under £1

Our writer takes a look at one growth-focused investment trust in his SIPP that could generate a market-beating performance long…

Read more »