When a UK share falls out of favour, it’s all too easy to forget about it. With plenty of buying opportunities on the FTSE 100 today, it’s hard to keep track of them all.
I gave up on consumer goods giant Reckitt (LSE: RKT) a while ago. My last article on the stock, published on 24 August last year, was brutally dismissive. I wrote: “This much-loved UK share is at a 52-week low, but I wouldn’t touch it with a bargepole.”
Reckitt wrecking ball
Once seen as a textbook defensive play thanks to brands like Dettol, Nurofen, Finish and Durex, Reckitt lost its shine after a disastrous $16.6bn deal in 2017 for US baby formula maker Mead Johnson Nutrition. Legal risks from that business turned into a nightmare, when a US jury ordered Reckitt to pay $60m in damages over its Enfamil product. Lawsuits continue.
Add in a tornado disrupting US production, some accounting irregularities in the Middle East, and it’s clear why I stayed away. I did say the Reckitt share price might snap back nicely if legal battles go in its favour, but felt the stock was far too binary to buy.
If I had bought it, I’d be sitting on a 38% gain today, as my binary buy bites back. Much of that has come in the last month, with the stock jumping almost 15%. On 24 July, it posted stronger-than-expected Q2 like-for-like sales, up 1.9%. First-half sales rose 1.5%, while operating profit climbed 1.8% to £1.7bn.
More importantly, Reckitt upgraded its full-year revenue guidance, predicting growth of 4%, up from the previous range of 3% to 4%. That’s a decent move in a tough market, with global growth still fragile and trade friction squeezing sentiment.
CEO Kris Licht has promised to keep returning cash to investors, with a £1bn share buyback programme. The stock now yields around 3.6%, forecast to rise to 3.72% this year and 3.9% in 2026. It’s dividend track record is pretty strong, increasing shareholder payouts in all but three years since 2023. The 2024 dividend was increased by a respectable 5% to 202.1p per share.
FTSE 100 value stock
Even after the recent bounce, Reckitt trades at a modest price-to-earnings ratio of just 16.5 times. That’s a far cry from the 25-times earnings it commanded during its heyday. The valuation still looks reasonable for a business with some decent cash flow, pricing power and a genuinely global footprint.
The company is slimming down its product portfolio, pushing through the sale of its Essential Home business, which houses non-core brands like Air Wick, Calgon and Cillit Bang. That could improve focus and margins.
There’s still a long way to go, and litigation risk remains. But the recent results suggest the business is building again.
The analysts seem to agree. Eight out of 16 rate Reckitt a Strong Buy and two more say Buy. Seven say Hold. None are selling. Their median one-year price target is 5,906p, a modest 5% above today’s level, but many of those predictions may predate this month’s big jump.
I’m not expecting fireworks. But for investors taking the long-term view, I think Reckitt is worth considering again. I’m putting my bargepole away.
