Shares in Reckitt RKT leapt by over 10% this morning after the hygiene, health and nutrition group was cleared of liability in a case against its baby formula.
A court in Missouri rejected the claim that the baby formula, made by Reckitt’s Mead Johnson division in collaboration with the medical company Abbott ABT, led to necrotizing enterocolitis—an inflation of the bowel that requires invasive surgery.
Plaintiffs argued that both Reckitt and Abbott had knowledge of the risks the baby formula posed but withheld information.
This case is related to one infant, although 1,000 similar cases are pending against the two companies.
At the time of writing, Reckitt shares are currently up 8.57%.
Key Morningstar Metrics for Reckitt Benckiser Group RKT
• Economic Moat: Wide
• Fair Value Estimate: £65.00.
• Morningstar Rating: 4 stars
• Sector: Consumer Defensive
• Morningstar Uncertainty Rating: Medium
Russ Mould, investment director at AJ Bell described Reckitt’s share price jump as a “relief rally” off the back of the Missouri ruling.
“There has been nothing but bad news on this front for Reckitt for some time so it’s not a surprise this chink of light has been seized upon by investors in a positive way,” he said.
“There are still plenty of outstanding cases so this issue will not go away for Reckitt overnight, but it certainly represents a crumb of comfort for long-suffering shareholders.
“An eventual resolution of this issue could be a precursor to selling the Mead Johnson business, which has been nothing short of a disaster for Reckitt since it was acquired for $16.6 billion in 2017.”
Reckitt is already planning to offload some of its consumer households and goods brands with the sales of products like air freshener Airwick and Cillit Bang cleaner.
In July, Reckitt also announced plans to reshape its business to focus on a portfolio of power bands ranging from Gaviscon to Nurofen.
The company’s stock is currently trading at £51.02 per share, below Morningstar’s Fair Value Estimate of £65.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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