Reckitt Benckiser Group PLC (LON:RB.) is trading at a historical discount to its peers after issuing a sales warning for the year and JP Morgan sees risk/reward skewed to the upside.
JP Morgan raised its rating to ‘overweight’ from ‘neutral’ and hiked the target price to 7,500p from 6,900p.
READ: Reckitt Benckiser restructures as it warns about full year sales after quarterly decline
In October, the consumer goods giant warned on full year sales as it posted a 1% decline in third quarter like-for-like revenue after a cyber-attack in June disrupted operations.
JP Morgan thinks it should be able to return to like-for-like revenue growth in line with its peers at 3% from the fourth quarter.
It also believes savings upside from the acquisition of infant formula manufacturer Mead Johnson Nutrition (MJN) will offset higher costs from the separation of its health and hygiene home divisions.
“Yet the timing of savings and costs could be a constraint in fiscal year 2018 leading to JPM 2% downside risk to EPS (earnings per share), though we see 5-8% upside to 2020,” JP Morgan said.
READ: Reckitt Benckiser shares fall as it confirms cut to full year revenue forecast
JP Morgan said the creation of two separate divisions is creating options for structural portfolio shifts and argues that RB is “not the best owner” for the hygiene home business and should consider a disposal.
Shares in RB rose 2.28% to 6,547p in morning trading.