On Tuesday, Morgan Stanley (NYSE:MS) reinforced its confidence in Reckitt Benckiser Group PLC (LON:RKT:LN), labelling the company as a top pick and maintaining an Overweight rating. The firm's analysts anticipate a solid performance from Reckitt, projecting a 4Q24 like-for-like (LFL) sales growth of 5.6%, which is slightly above the consensus estimate of 5.5%. This growth is expected to be fueled by a balanced mix of pricing and volume expansion.
For the full year of 2024, Morgan Stanley's forecasts align with consensus estimates, predicting an LFL increase of 1.6%. However, they expect Reckitt to achieve higher EBIT margins of 23.5% compared to the consensus of 23.3%. Looking ahead to 2025, the analysts project an LFL of 4.9%, marginally outperforming the consensus of 4.8%, and EBIT margins reaching 23.9%, surpassing the consensus of 23.6%. These projections are based on anticipated savings from the company's productivity program and continued volume growth, which are expected to contribute to margin expansion.
The analysts also predict that Reckitt's earnings per share (EPS) will grow at a high single-digit percentage rate in 2025, positioning the company in the top quartile of its European Staples peers. This growth is supported by the company's share buyback program. Morgan Stanley suggests that the market's focus will likely be on Reckitt's growth expectations in its core business, especially considering recent weak scanner data. Additionally, updates on the sale process of the Essential Home division are anticipated to draw attention.
Morgan Stanley's positive stance on Reckitt contrasts with their view on other companies in the sector. The firm recommends a tactical positive approach towards Carlsberg (CSE:CARLb), ABI, and Beiersdorf (ETR:BEIG) heading into fourth-quarter earnings but advises avoiding Diageo (LON:DGE), Pernod, and JDE Peet's. The analysts expect that consensus EPS estimates for most spirits companies may face downward revisions over the next year. In the broader context, Reckitt's top pick status at Morgan Stanley highlights the firm's confidence in the company's ability to outperform in the challenging consumer staples sector.
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