Is Now the Time to Buy Reckitt Benckiser Group?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today, I am looking at Reckitt Benckiser  (LSE: RB  ) (NASDAQOTH: RBGLY  ) to determine whether you should consider buying the shares at 4,342 pence.

I am assessing each company on several ratios:

  • Price/earnings (P/E) ratio: Does the share look good value when compared against its competitors?
  • Price/earnings-to-growth (PEG) ratio: Does the share look good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend cover: Is the dividend sustainable?

So let's look at the numbers:

Stock

Price

3-Yr. EPS Growth

Projected P/E

PEG

Yield

3-Yr. Dividend Growth

Dividend Cover

Reckitt Benckiser

4,342 pence

17%

16.8

N/A

3%

17%

2

The consensus analyst estimate for next year's earnings per share is 258 pence (down 2%) and dividend per share is 135 pence (up 1%).

Trading on a projected P/E of 16.8, Reckitt appears to be slightly cheaper than its peers in the household goods sector, which are currently trading on an average P/E of around 17.7.

Unfortunately, Reckitt's P/E and falling near-term earnings give a negative PEG ratio, which cannot be of any help with my analysis.

Reckitt supports a 3% yield, which is above the sector average of 2.3%. Furthermore, Reckitt has a three-year compounded dividend growth rate of 17%, implying that the yield will continue to stay above that of its peers.

In addition, the dividend is just under two times covered by earnings, giving Reckitt plenty of room for further payout growth.

Should you buy Reckitt Benckiser for its defensive nature?
Reckitt is a global manufacturer of cleaning products and over-the-counter health treatments, which gives the company a defensive nature. That said, Reckitt's growth has slowed during the past year as falling consumer incomes and increasing competition has hit demand for its products.

Nonetheless, Reckitt's management is taking action and is focusing on six global "power brands" to drive the company forward. The company is also targeting expansion in emerging markets and the management reckons such countries will account for up to 50% of group sales by 2015.

Indeed, the emerging-market strategy already appears to be working. Within Reckitt's full-year results released two weeks ago, the company reported group sales for the year had expanded 11% within Latin America and Asian markets and 8% in the Middle East and African markets.

Furthermore, Reckitt is looking for bolt-on acquisitions to boost organic growth and recently acquired Schiff Nutrition -- a North American vitamins company. In addition, Reckitt has acquired the licensing rights from Bristol-Myers Squibb for several Latin American health brands, including the popular painkiller Tempra.

However, despite this growth and the company's defensive nature I believe Reckitt's shares currently look overpriced. You see, Reckitt's share price has risen 20% during the last three months alone, outperforming the rest of the FTSE 100 by 12% -- and I believe this rapid rise could soon be coming to an end given the near-term earnings outlook and present P/E rating.

So, after taking all that into account, I feel now does not look to be a good time to buy Reckitt Benckiser at 4,342 pence.

More FTSE opportunities
Although I feel now may not be the time to buy Reckitt Benckiser, I am more positive on the FTSE 100 share highlighted within this exclusive free report.

You see, the blue chip in question offers a 5.7% income, its shares might be worth 850p compared to about 700 pence now, and it has just been declared "The Motley Fool's Top Income Stock for 2013." Just click here to read the report -- it's free.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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