Bernstein Downgrades Reckitt Benckiser

Investing.com – Bernstein has downgraded its investment stance on Reckitt Benckiser (LON:RKT), citing ongoing litigation challenges affecting the consumer goods giant.

At 08:15 ET (13:15 GMT), Reckitt's stock fell 0.4% to £49.75, a decline of over 8% year-to-date.

> "Reckitt shares have experienced a rollercoaster over the past twelve months, primarily due to the NEC litigation in the US," noted Bernstein analysts in a report dated Nov. 4.

The stock price dropped 13% in February due to weak FY23 results and plummeted another 15% in March following an adverse ruling in the Watson NEC trial. The share price then rallied 7% on Friday after a favorable jury decision in the Whitfield NEC trial.

Bernstein assessed that the NEC litigation discount has decreased from more than £10bn to around £4bn, leading to a more accurate fair value estimate for Reckitt.

Consequently, Bernstein has downgraded its rating to ‘market-perform’ from ‘outperform’ and adjusted its price target to £53.00 from £60.00. Additionally, the bank has revised its anticipated settlement values.

> "We estimate a reasonable settlement figure to be around $100k per plaintiff, a significant decrease from the previous estimate of $1-3m per plaintiff," Bernstein explained, while also increasing their expected number of cases significantly.

The revised “base case” settlement cost for Reckitt has risen from $500m to approximately $1bn, suggesting that the £4bn litigation discount no longer presents substantial upside given the new estimated settlement value of £0.8bn.