Broker snap: Credit Suisse upgrades Reckitt, plays down pharma concerns

6th Feb 2014 09:15

Consumer goods giant Reckitt Benckiser was making gains on Thursday after Credit Suisse lifted its rating for the stock from 'neutral' to 'outperform', saying that investors should look past concerns regarding its struggling pharmaceuticals division.The target for the share price of the health, hygiene and home products firm has been lifted from 4,650p to 5,200p."The irony is that 50% of the commentary on Reckitt is about a business that represents 15% of the profits and probably under 5% of the value. Yet pharma is now 'non-core' and subject to strategic review," the bank said.It admitted that the market's "obsession" with this division is understandable given that the loss of this profit stream from a potential disposal would weigh on earnings per share (EPS) growth over the medium term.However, Credit Suisse stressed that the company excluding pharmaceuticals is "getting back in shape"."The Chief Executive Officer inherited a business that had been squeezed rather too much, and has spent two years restoring investment and stabilising market shares. Reckitt is back on its feet and in better shape to build/compete. A clear direction has been identified."The bank said that a sale of the pharmaceuticals division would be dilutive to EPS, but there are other assets under review elsewhere that "might fill the earnings gap"."It is time then to look past pharma challenges, and indeed tough cough/cold comparatives, and look at what Reckitt could be by the end of what is likely to be a seminal year for the group."The stock was 2.6% higher at 4,776p by mid-morning.BC