HSBC has raised its rating on Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB) from ‘hold’ to ‘buy’ as part of a reassessment of European consumer staples stocks.
Share prices across the entire European consumer staples sector tumbled in 2024, reflecting what HSBC called “one of the worst years in recent memory” for the industry.
Weak demand in China and subdued conditions for lower-income consumers in the US drove a 27% underperformance in the European staples sector relative to broader markets.
Additional pressures, including inflation fatigue and poor summer weather in Europe, further constrained demand across key segments.
HSBC stated: “Although we do not see any quick improvement in trends, we think that the material reduction in sector valuations amid generally low expectations does create plenty of opportunities for 2025 and we adopt a more constructive stance towards the sector.
“In particular, we think that a group of companies delivering moderate sales and profit growth on near-15-year low absolute and relative valuations does create interesting opportunities.”
Reckitt is one of them, with HSBC analysts predicting moderate sales growth, operational recovery and favourable developments in the baby formula litigation as key drivers for the upgrade.
HSBC upgraded its Reckitt share price target from 4,800p to 5,500p against a current share price of 4,798p.