How to trade the upcoming Reckitt Benckiser Q1 trading update

​​​Investor eyes on Reckitt Benckiser Q1 trading statement after challenging year

​Consumer goods giant Reckitt Benckiser Group is set to report its first quarter (Q1) trading statement on Wednesday 24 April. Investors will be watching closely to see if the company can rebound after a difficult 2023 that saw falling profits.

​Reckitt Benckiser, maker of popular brands like Dettol, Durex, and Enfamil, has faced numerous headwinds in recent years. Rising costs, supply chain disruptions, and changes in consumer behaviour during the pandemic have posed challenges to growth and profitability.

​Last year, Reckitt Benckiser saw its net income decline 30% to £1.63 billion, with profit margins shrinking from 16% to 11%. Earnings per share (EPS) similarly fell from £3.27 to £2.28 over 2022.

​While the company did see a slight 1.1% uptick in revenue to £14.6 billion, it missed analyst estimates. This top-line growth also lagged the wider household products industry in Europe.

​With these latest results, investors are questioning whether Reckitt Benckiser’s current strategy is working. The company has made several large, transformative acquisitions in recent years, like its $17 billion purchase of infant formula maker Mead Johnson. Integrating these new brands while dealing with a lacklustre economic climate has proven difficult.

​Additionally, the post-pandemic demand surge for cleaning products like Lysol and Dettol has fallen to the wayside. Even though inflation is on the way down again, consumer budgets remain tight as recessions bite in several of the consumer goods giant’s key markets.

​Reckitt Benckiser needs to show it can adapt through innovation and cost discipline.

​Can Reckitt Bounce Back in 2024?

​Heading into its Q1 2024 earnings report, Reckitt Benckiser has forecasted revenue growth of 3.1% annually over the next three years. This rests on the company’s plan to raise prices to overcome cost inflation.

​However, if volumes fall significantly due to higher prices, this top-line growth could be in jeopardy. Reckitt also hopes to leverage operating leverage, cutting costs in areas like supply chain and operations to rebuild profit margins.

​But with a still gloomy economic picture all over Europe, it remains to be seen if Reckitt Benckiser can reaccelerate growth and margins. Much depends on how resilient consumer demand holds up across the company’s portfolio of health, hygiene and nutrition brands.

​Competitors like Unilever, P&G and Johnson & Johnson also face obstacles, but have greater scale and diversification. Reckitt remains highly exposed to infant formula and the struggling European markets.

​While Reckitt Benckiser’s focus on essential consumer products provides some defensive characteristics, its high debt levels and narrower product range add risk should the operating environment worsen.

​In the end, Reckitt’s upcoming Q1 trading statement will be a key indicator if the company’s turnaround plans can regain momentum. Improving execution operationally while balancing targeted investment for the future will be critical in 2024.

​If both revenues and earnings can show progress against a difficult comparison in 2022, investor confidence may improve. But another year of declining profits and margins could test the patience around Reckitt Benckiser’s ongoing business transformation.

​Solid dividend yield and extreme undervaluation

​Reckitt Benckiser’s estimated 12-month dividend yield currently sits at 4.54%, compared to its 1-year dividend growth of 5.02% and its 3-year dividend growth of 3.31%.

​More interesting for fundamental investors is the fact that the Reckitt Benckiser price-to-earnings (P/E) ratio is trading at its lowest level in over five years at 12.68, around two standard deviations away from its five-year average.

​Analysts recommendations and IG sentiment

​Fundamental analysts are rating Reckitt Benckiser between a ‘buy’ and a ‘hold’ with LSEG Refinitiv data showing 3 strong buy, 6 buy, 9 hold and 1 sell - with the mean of estimates suggesting a long-term price target of 5,513.13 pence for the share, roughly 29% above the share’s current price (as of 23 April 2024).

​IG sentiment data shows that 88% of clients with open positions on the Reckitt Benckiser share expect the price to rise over the near term while 12% of clients expect it to fall. This week saw 50% of IG clients (sample size of between 51 and 250) buy the Reckitt Benckiser share but over the course of this month 56% sold it.

Technical analysis on Reckitt Benckiser share price

​The Reckitt Benckiser share price, down around 21.5% year-to-date, compared to the FTSE 100’s over 4% gain with it trading in record highs, trades at levels last seen in January 2013.

​Reckitt Benckiser Monthly Chart

​The fact that the Reckitt Benckiser share price has fallen through its 24-year uptrend line at 4,666p in March doesn’t bode well for the bulls.

​The 2010-to-May 2012 highs at 3,688p to 3,595p represent a possible long-term downside target.

​Reckitt Benckiser Daily Chart

​Better-than-expected Q1 2024 results may help the Reckitt Benckiser share price bounce off last week’s 11 ¼ year low at 4,110p.

​Even if a short-term bullish reversal were to take place, the late-March high at 4,543p would need to be exceeded in the first instance and, more importantly, the mid-March high at 5,310p, some 20% above where the Reckitt Benckiser share price is trading at the moment (23 April 2024).