Reckitt Benckiser (RKT) will import baby formula powder from Asia to help address the shortage that has hit the U.S. market. The UK-based manufacturer sells health, nutrition, and hygiene products. It is one of the largest baby formula sellers in the U.S. alongside Abbott Laboratories (ABT).
Reckitt sells its formula under the Enfamil brand. According to a Wall Street Journal report, Reckitt will import the formula powder from Singapore. The company will blend and package the powder at a facility in Minnesota before it begins to distribute the product. Reckitt plans to import the formula from now until November. It aims to have enough supplies to feed at least 130,000 babies a month.
What Is Causing the Baby Formula Shortage?
Apart from Abbott and Reckitt, the other major formula companies in the U.S. are Nestlé (NSRGY) and Danone (0KFX). Abbott has been the largest supplier of the product, but it has faced problems that have adversely affected its contribution to the market.
The company had to recall its formula from the market over contamination fears. The issue led to a production halt. Abbott’s baby formula is sold under the Similac brand. Although Abbott has recently resumed production, it has paused operations again because of flooding at its Michigan facility that makes the formula.
COVID-19-related supply chain challenges triggered the formula shortage, and Abbott’s problems have only made them worse. Meanwhile, Reckitt and other formula makers are increasing their supplies to address the shortage and boosting their sales at the expense of the market leader, Abbott. For example, Reckitt’s formula factories are now running nonstop, including through weekends, to increase production.
Wall Street’s Take
The Street is cautiously optimistic about Reckitt Benckiser with a Moderate Buy consensus rating, based on 11 Buys, one Hold, and two Sells. The average Reckitt Benckiser price target of GBp 7,248.08 implies 20% upside potential to current levels.
Smart Score
Reckitt Benckiser scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
Key Takeaway for Investors
With a U.S. market share of about 35%, Reckitt ranks second only behind Abbott. The troubles at Abbott have given Reckitt an opportunity to capture a larger share of the U.S. baby formula market. According to Allied Market Research, the U.S. infant formula market was valued at about $4 billion in 2020 and is on track to grow to $6.78 billion by 2030.
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