At just above £50 per share, the market cap of consumer brands leader Reckitt Benckiser is roughly the same as in 2015. The ill-thought-out acquisition of Mead Johnson in 2017 saddled the company with debt and diverted management’s focus away from the core business. The following litigation related to the company’s “failure to warn” about the health risks of Mead’s products didn’t help, either. All told, long-term investors have little to show for it over the past decade.
On the bright side, a settlement is expected and Reckitt has committed to eventually divest Mead Johnson, so the litigation drama is about to end one way or another. Can the stock finally resume its uptrend soon then? It looks like it, according to Elliott Wave analysis.
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The weekly price chart of Reckitt Benckiser shows that between the years 2000 and 2017, the stock produced a five-wave impulse pattern. We’ve labeled it (1)-(2)-(3)-(4)-(5), where the five sub-waves of (1) are also visible. According to the theory, a three-wave correction follows every impulse. In a sense, the post-2017 decline stemming from the disastrous Mead Johnson deal was right on schedule.
It can be seen as a simple (a)-(b)-(c) zigzag, whose wave (b) was a triangle marked a-b-c-d-e. This correction erased just over half of the preceding uptrend. If this count is correct, the Elliott Wave cycle is complete and Reckitt Benckiser stock can be expected to move in the direction of the impulsive sequence. A new all-time high makes sense, putting initial upside targets above £81 on the table in the long run.
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