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Is the Reckitt Benckiser share price finally low enough to make the stock a bargain for me?

FTSE 100 pharmaceutical and consumer healthcare giant Reckitt Benckiser (LSE: RB) is in a state of flux. Its CEO of the past eight years, Rakesh Kapoor, is retiring and the speciality pharmaceuticals company, Indivior (LSE: INDV), spun off from it a few years ago, is facing charges for promoting opioid usage.  

Unsurprisingly, this has taken its toll on the share price, which has flatlined for the past year. But while the reasons for uncertainty about the company are valid, there’s a lot happening in its favour as well. Here’s why I believe it remains a compelling buy.

Fine print of Indivior charges

Regarding the charges against Indivior by the US Department of Justice, the company fraudulently marketed its opioid drug Suboxone Film (used for treatment of opioid addiction) as safer and less addictive than it truly is. The charge is a very serious one in any scenario, but with the US Department of Health and Human Services having declared opioid usage as a public health emergency, it takes on even more gravity

While there could be implications for Reckitt from this, I think it’s jumping the gun to dump the stock, because Indivior is an entity in its own right, which is also listed on the London Stock Exchange. So far, a fine has been slapped on the company, but it remains to be seen how it reacts to the charges. Some charges are associated with the time when it wasn’t yet spun off from Reckitt, which potentially makes that firm directly responsible. But even if its ex-parent company is also found guilty, there’s no way of predicting the exact amount of damage it will cause, especially since pharmaceuticals is only one part of the wider Reckitt business.

Inheriting a healthy but changing company

I think a new CEO will have a handful to deal with as he or she joins, and not just because of the Indivior issue. In 2017, the company made its largest acquisition of consumer healthcare company Mead Johnson, and any buy takes its time to bed-in. Another structural change under way is the split of Reckitt itself into two segments – health as well as home and hygiene products. Of course these are big, bold moves and it’s possible to drop the ball on any of them.

But it is worth bearing in mind that despite massive restructuring, its growth is chugging along quite well and it expects 3%-4% revenue growth in 2019 as well. So even with ongoing changes, at the very least the CEO will inherit a healthy business. I think that growth can be maintained given its past performance and the rest can most likely be managed as it has been so far.

Emerging markets focus

There’s little to suggest that growth could be derailed. In fact, the firm’s prospects looks promising with a steady shift towards emerging markets. In less than a decade, the company’s revenue share from these markets has increased from 25% to 40%. Countries like China, India and Brazil show great promise for the firm, and the first two are enjoying strong growth rates. It is also worth remembering that ‘consumer defensive’ is a good sector to be in, and the combination of safety and growth is an investor dream. I think the soft share price would encourage me to buy some of its shares.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.