RBC Capital Markets has lowered its rating for Reckitt from Outperform to Sector Perform following the forecast reset for the Essential Home division. This move comes after Reckitt announced the disposal of Essential Home, a special dividend of £1.6 billion, and a planned share consolidation. Analyst James Edwardes Jones noted that these changes largely offset each other in the company's valuation.

The downgrade reflects RBC's updated forecasts, which now include a lower price target of £62, down from £64, based on an adjusted present value methodology. Jones highlighted that Reckitt has not provided clear guidance on margin growth for 2026, assuming a 60 basis point decline in EBIT margin. This assumption accounts for lingering cost headwinds following the Essential Home transaction.

The analyst also reiterated assumptions around the ongoing NEC litigation linked to Mead Johnson, modeling a £2 billion global settlement. The first multidistrict litigation bellwether case against Mead Johnson, scheduled for February, is expected to provide clarity on Reckitt's negotiating position. Despite the unresolved litigation, RBC views the disposal of Essential Home favorably, noting it was received well, despite a low price reflecting a buyer's market.

Based on the updated estimates, RBC indicates that Reckitt is trading at a 2027 enterprise value (EV) to net operating profit after tax (NOPAT) multiple of about 19.2x, in line with peers like Haleon and Nestle. This valuation is considered fair given the ongoing NEC litigation, suggesting that the stock's current price reflects these unresolved issues.