Today I’ll be taking a closer look at household cleaning products specialist Reckitt Benckiser (LSE: RB), medical equipment manufacturing company Smith & Nephew (LSE: SN) and global information services supplier Experian (LSE: EXPN). Would it be (Motley) Foolish or truly foolish to invest in any of these right now?
As the world’s largest producer of household goods and cleaning products, Reckitt Benckiser has enjoyed solid growth over the last few years. This is a low-risk defensive company that produces everyday items and well-known brands that are considered essentials in the developed world.
So the company has had a glorious past, but what about the future? City analysts are predicting continuing growth with a 4% rise in earnings this year, and a further 8% rise in 2017. In addition, the company is paying out a modest dividend, with 140.12p per share forecast for this year, rising to 150.56p next year, offering prospective yields of 2.1% and 2.2% over the next couple of years.
Reckitt trades on 25 times forecast earnings for the current year, falling to 23 for the year ending 31 December 2017. Although this may seem a little high, it’s in line with historical levels, and factors-in long-term growth. This is a solid, defensive stock with steady growth and a reasonable dividend. Investors with a long-term view might want to buy on the dips, or drip-feed into the stock.
After single-digit growth every year for five years, shares in medical equipment firm Smith & Nephew have gone flat, trading in a tight range between 1,051p and 1,212p per share over the past 12 months. This reflects the consensus forecasts that suggest there will be little or no earnings growth this year, followed by a very promising 2017 when a 12% rise in earnings is expected.
What about dividends? As with Reckitt Benckiser, the company pays a moderate dividend, forecast at 22.14p per share for this year, increasing slightly to 24.77p in 2017, offering prospective yields of 2% and 2.2% over the next two years, respectively.
Smith & Nephew trades on 19 times forecast earnings for the current year, falling to 17 for the year ending 31 December 2017. The shares look fully-priced to me, given the average P/E ratio and slow historical growth, and I see no reason for a rerating any time soon.
Business services firm Experian issued a solid trading statement in January, reporting a 6% rise in organic growth in the third quarter. However, full-year results to 31 March 2016 are expected to reveal a 10% drop in earnings compared to fiscal 2015 on the back of foreign exchange headwinds.
After five straight years of growth, this should be a temporary blip, as brokers in the Square Mile are predicting a 7% rise next year, and a further 9% rise in 2018.
Experian currently trades on 20 times forecast earnings for this year, falling to 19 next year, then 18 in 2018. The P/E ratio is on a par with firm’s historical levels, and the shares look fully-valued.
Time to buy?
In my opinion, Reckitt Benckiser offers steady growth and a modest dividend for those seeking a low-risk defensive stock, however I can’t see any attractions for buying into Smith & Nephew or Experian at the present time.
Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.