Broker snap: Canaccord hikes Reckitt target but valuation full

22nd Apr 2013 10:21

Canaccord Genuity has hiked its target price for consumer products group Reckitt Benckiser from 3,425p to 4,100p after a decent first quarter, but has kept its 'sell' rating for the stock.First-quarter sales in the core business were up 6.0%, in line with Canaccord's expectations, helped by strong sales in a favourable cold and flu season.Meanwhile, the pharmaceuticals division has had an "extremely strong" start to the year with sales up 19% against the consensus forecast of +8.0%.Overall group sales were up 7.0% year-on-year, ahead of the 6.0% estimate."Guidance is unchanged for 2013, though we are likely to nudge up our top line assumption moderately," the broker said."Overall Reckitt is performing in line with expectations in its core business and slightly better in Pharma; however, margins are guided to flat for the year and earnings progression will be limited this year and next. The risk that the company will overpay in order to accelerate its emerging market presence remains."The stock is trading at a 10% premium to the wider staples sector which Canaccord thinks is "too full" given that earnings are expected to grow at a compound annual growth rate of just 5.0% over the next three years.The broker said that a sector-average rating looks "more realistic in our view".The stock was up 0.17% at 4,717p by 10:35.BC