Broker tips: Reckitt Benckiser, IAG, Hays

15th Feb 2016 11:32

(ShareCast News) - Reckitt Benckiser's full-year results were "exceptionally strong", broker Canaccord Genuity said following the company's latest results, but the shares already "full-valuation" meant that it left its 'hold' recommendation on ice.The consumer goods giant's full-year results easily surpassed analysts estimates for its earnings per share by 7%, with about four percentage points of the 'beat' being the result of the company's "strong" operational performance, analysts Alicia Forry and Eddy Hargreaves said in a research note sent to clients.Management's guidance for growth of between 4% to 5%, excluding savings from Supercharge was "conservative", "which the market will anticipate being raised later in the year," the analysts said."Fiscal year 2016 consensus estimates coming into today's results stood at sales +4.9% and operating margin +70 basis points. We think there is already some modest upside to this."To take note of as well were the relatively unconsolidated nature of many of Reckitt's markets, its high market shares and continuing strong innovation track versus the wider health and personal care sector, the broker added."FY16 earnings growth is likely to moderate with a) a higher tax rate b) less benefit from Supercharge savings c) destocking of some seasonal Health brands in H116 d) tough comps. Valuation is relatively full in our view, with the market anticipating a sizeable acquisition: a double-edged sword. While raising our target price by 4%, we therefore retain a HOLD recommendation," the analysts concluded.The target price on the shares was bumped up from 5,825p to 6,030p.British Airways and Iberia parent International Consolidated Airlines flew higher on Monday after Bank of America- Merrill Lynch upgraded its stance on the stock to 'buy' from 'underperform' with an unchanged price target of 610p.Overall, the bank reiterated its structurally bearish equity and credit view on the European airlines."However, we continue to appreciate that even the most value-destructive companies can have 'their day in the sun,' particularly in these increasingly volatile times".BofA Merrill Lynch said the shares had over-shot on the downside, ahead of a likely robust fourth quarter earnings update on Friday 26 February."The shares have since the start of this year fallen around 20%, at a time when we are beginning to annualise (Q2'16) those same Delta-Virgin capacity-addition risks. Moreover, we expect the company to hit FY15 consensus earnings expectations in ten days' time."Hays got a boost on Monday after HSBC upgraded the stock to 'buy' from 'hold' and lifted the price target to 155p from 140p as it took a look at the UK staffing sector.The bank noted Hays trades at a CY16 price-to-earnings ratio of around 13x and EV/EBITDA multiple of around 8x on both its and consensus estimates.HSBC lifted its target price on the stock applying average 12-month forward price-to-earnings multiples over the past three years and cross-checking these with an adjusted present value methodology and other multiples.It said the new target price implies 34% upside from the current price, hence the upgrade.More generally, the bank said a slowing in sales growth in the UK labour market in the fourth quarter, on top of broader fears of an economic slowdown around the world, has left investors nervous of the UK staffers.