Reckitt Benckiser (LSE: RKT) shares struggled last year, suffering losses after an infant death in the US was blamed on its product Enfamil. The financial and reputational damage of the subsequent lawsuit wiped 28% off the share price.
I’ve held shares in the company since before the lawsuit (which was in March 2024). Finally, after almost a year, it’s close to recovering all those losses.
I’m still down around 7%, although the dividends have helped reduce those losses somewhat. Investors who bought the dip six months ago will be happy with their 20% gains.
But there’s still a long road ahead to a full recovery.
Next Thursday (6 March), the company is set to release its full-year 2024 results. With a history of earnings misses and muted growth expectations, investors may be wondering whether the shares are worth considering ahead of the announcement.
Let’s take a closer look at the key figures and what they could mean for the stock.
Earnings expectations: another miss?
Reckitt has failed to meet earnings expectations for the past three years, and 2024 could potentially be another disappointment. Analysts predict earnings per share (EPS) of £3.16, which would be lower than last year’s figure.
While revenue is expected to rise slightly to £14.2bn, the overall earnings picture remains weak. This suggests that cost pressures or weaker margins may still be a concern.
One positive sign is Reckitt’s financial discipline. Since 2021, the company has steadily reduced its debt while increasing free cash flow.
This trend indicates strong capital management and could provide stability in the long run. However, with earnings stagnating, investors may need to be patient before seeing significant returns.
Barclays downgrade and growth concerns
Recently, Barclays downgraded Reckitt shares from Overweight to Equalweight, reflecting concerns about the company’s near-term prospects. Analysts forecast flat earnings until at least 2027 as Reckitt reorganises its product portfolio.
This restructuring may lead to long-term benefits, but it could also mean subdued returns in the short term.
The average 12-month price target for the shares is £57, representing a modest 8.3% growth from current levels. While this suggests some potential for capital appreciation, it’s not particularly exciting compared to other opportunities in the market.
On the dividend front, it offers a reliable 3.78% yield, which is slightly above average. The company has a strong track record of increasing dividends at a compound rate of 5.2% annually for the past 15 years.
This consistency may appeal to income-focused investors. However, if the share price remains stagnant, dividends alone may not be enough to justify an investment.
Should investors consider acting before results?
With earnings pressure, a recent downgrade, and limited growth expectations, I don’t see Reckitt shares as a compelling pick ahead of next week’s results. While its financial discipline and steady dividends provide some stability, the lack of earnings growth and potential for another earnings miss could keep the stock under pressure.
Still, I remain confident in the company’s long-term potential. For those looking for a defensive play, I think Reckitt remains a potential choice. But for investors seeking growth or strong capital appreciation, there may be better opportunities to consider elsewhere in the current market.
This post was originally published on Motley Fool
