Reckitt Benckiser‘s (LSE:RKT) one of those FTSE 100 stocks that rarely attracts much attention. With an impressive portfolio of famous hygiene, health and nutrition brands — Durex, Dove and Dettol, to name just three — it’s the sort of company that quietly goes about its business.
Good value
For the year ending 31 December (FY24), analysts are expecting earnings per share (EPS) of 320.1p. With a current (20 September) share price of 4,541p, this gives a price-to-earnings (P/E) ratio of 14.2.
Looking further ahead, this drops to 13.3 (FY25) and 12.3 (FY26). This appears attractive given that the average for the past five years has been just under 20. Therefore, now could be a good time to buy.
Income investors will also appreciate the amount of cash that’s being returned to shareholders. Although not guaranteed, it looks as though the company’s going to pay a dividend of 202p a share in FY24. This suggests a yield of 4.5%, comfortably above the FTSE 100 average of 3.8%.
And it appears to offer good value compared to, for example, Unilever which also operates in the fast-moving consumer goods (FMCG) sector. In 2024, analysts are forecasting EPS of €2.76 (£2.32). If these estimates prove to be accurate, based on a current share price of £48.46, the stock offers a much less appealing P/E ratio of 20.9.
Unilever’s yield’s also inferior to that of its smaller rival. Using the dividends for the four quarters to 30 June, its shares are currently offering a return of 3%.
Reasons to be cautious
But there are a couple of issues that cause me concern. In March, a court in the United States ruled that Reckitt Benckiser’s infant formula (Enfamil) caused gastrointestinal problems for a baby that subsequently died. Although the damages of $60m (£45m) are a drop in the ocean for a company worth £31bn, I fear others may bring similar actions.
Indeed, another case is due to be heard on 30 September.
The company strongly refutes the new claim and has decided not to make a provision in its accounts at 30 June. Accounting standards require money to be set aside if it’s “probable that an outflow of cash or other economic resources will be required“.
On the day of the judgement, the share price fell nearly 15%.
It was a similar story in February. The company’s stock fell 13% after accounting irregularities were reported in the Middle East. A small number of employees were said to be under-reporting liabilities. Correcting the issue resulted in a £35m hit to its bottom line.
Is it time to invest?
Although on paper I think the shares offer excellent value at the moment, I believe this has more to do with the uncertainty over its infant milk than anything else.
The company’s stock’s currently changing hands for 21% less than at their 2024 peak. And there’s been a steady decline since the company lost its Enfamil court case.
Until this issue’s resolved, the shares are too risky for my liking.
This post was originally published on Motley Fool
