On Tuesday, Citi reaffirmed its positive stance on Rentokil Initial plc (LSE:RTO) (OTC:RTOKY), maintaining a Buy rating and a price target of GBP6.75.
The firm is optimistic about Rentokil’s upcoming first-quarter results, set to be released on April 18, anticipating a robust business update. This outlook is particularly significant in light of the stock’s recent underperformance, with a roughly 15% decline over the past few weeks.
Rentokil’s focus on growth in North America is expected to show a year-over-year increase of approximately 2% for the first quarter, compared to a 1.2% rise in the fourth quarter and a forecasted 2-4% for the full year of 2024. Citi’s analysis indicates that demand for pest control services in the United States remains strong year-to-date, supported by employment trends in the pest sector, Google (NASDAQ:) search data, and temperature patterns across six key states.
The firm anticipates a significant uptick in growth starting from the second quarter. Citi’s position is that the current valuation of Rentokil’s shares does not reflect the company’s growth potential, attractive profit margins, or its ability to generate cash. The forthcoming first-quarter results are expected to reinforce investor confidence and highlight the company’s solid performance.
Citi’s commentary underscores the potential for Rentokil’s performance to improve as the year progresses, particularly entering the second quarter, which is crucial for the pest control industry. The firm’s analysis and the expected business update may provide the necessary reassurance to investors concerned about the company’s recent share price trajectory.
InvestingPro Insights
InvestingPro data and tips paint a promising picture for Rentokil Initial plc, aligning with Citi’s optimistic outlook. The company boasts a notable gross profit margin of 82.75% for the last twelve months as of Q4 2023, reflecting a strong ability to control costs and maximize profitability. Additionally, with a P/E ratio of 24.86, Rentokil is trading at a level that could be considered attractive given its near-term earnings growth potential. This is complemented by a moderate level of debt, which suggests a balanced approach to financing and risk management.
InvestingPro Tips further highlight that analysts predict the company will be profitable this year and that it has been profitable over the last twelve months. Moreover, Rentokil has delivered a high return over the last decade, which may interest long-term investors. For those seeking further insights and tips, there are 5 additional InvestingPro Tips available for Rentokil at https://www.investing.com/pro/RTOKY. To access these insights and tips, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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