Reckitt Benckiser Group (LSE:RKT) shares gained 4.3% on Tuesday after a U.S. jury found in favour of its Mead Johnson unit in litigation concerning its Enfamil preterm infant formula.
The case alleged that the formula caused necrotizing enterocolitis (NEC), a serious bowel disease. A unanimous jury in the U.S. District Court for the Northern District of Illinois sided with Mead Johnson.
The trial was the first bellwether case involving Mead Johnson in the federal multidistrict NEC litigation. Reckitt said there are currently no outstanding jury verdicts against Mead Johnson across the broader NEC litigation.
J.P. Morgan upgrades Reckitt to overweight
The court decision coincided with an upgrade from J.P. Morgan, which raised its rating on Reckitt to “overweight” from “neutral”.
The brokerage said attention could increasingly turn towards the valuation of Reckitt’s core operations and the outlook for Mead Johnson.
J.P. Morgan analyst Celine Pannuti commented, “We see rising prospects for resolution on NEC litigation following Abbott’s partial settlement of some NEC cases, which makes the potential for a resolution closer than feared, along with the elimination of the overhang for Reckitt should allow the market to refocus on the core valuation.”
The comments followed Abbott’s partial settlement of some NEC cases, which J.P. Morgan cited in assessing the prospects for a broader resolution of the litigation.
Reckitt continues to assess baby formula business
Reckitt has been considering options for its baby formula operations as the business remains affected by NEC-related litigation.
The company has also been concentrating its portfolio around its core brands. Last year, Reckitt sold a majority stake in its Essential Home business to private equity firm Advent for $4.8 billion.
The infant formula lawsuits have remained a factor for investors in recent months, with Reckitt facing multiple claims relating to its products.
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