Please ensure Javascript is enabled for purposes of website accessibility

Wall Street’s Best Digest Daily Alert

With a sizeable earnings beat ($0.29), 14 analysts have now raised their forecasts for this drug company.

With a sizeable earnings beat ($0.29), 14 analysts have now raised their forecasts for this drug company.

Perrigo Company plc (PRGO)
From Canaccord Genuity Research

Bucking recent industry trends, Perrigo Company plc (PRGO) solidly beat 2Q/17 estimates and raised its full year guidance by the approximate amount of this quarter’s beat relative to consensus. A large part of the beat was driven by strength in front-of-the-store business like Consumer Health Americas (private-label OTC in the US) and Consumer Health International (primarily branded OTC ex-US) that behave materially different than US generics, which performed in line with our expectations.

With such strong performance for the consumer business and a leadership transition underway, we expect Perrigo may further shift toward a consumer-driven business over time. With substantial opportunity ahead: 1) new leadership coming soon; 2) a board focused on delivering shareholder return; and 3) a potential strategic shift to fully embrace Perrigo’s consumer roots we see significant opportunity in PRGO shares.

Perrigo’s consumer business behaves materially different that traditional generics. Perrigo’s consumer businesses—essentially front-of-the-house OTC products in private label (US) and branded (ex-US) presentations showed particular strength this quarter, driven by private-label launches in the US and strong performance in Mexico. Perrigo continues to refine its CHCI business, shedding unprofitable distribution sales and driven 4% adjusted constant currency growth through new product launches. This is in stark contrast to Perrigo’s current large-generic peer set facing significant pricing challenges and existential growth issues in recent quarterly announcement.

Perrigo’s generics business posted a 13% y/y revenue decline partially driven by lower Entocort sales. Perrigo continues to launch new generic products and has won a number of full and tentative approvals this year; the company raised FY/17 segment revenue guidance by $25mm to ~$950mm. However, with decent growth in the consumer business, higher valuations in the consumer peer set and a board focused on shareholder value, we expect the generics business could quickly become non-core to Perrigo under new leadership.

Perrigo raised guidance by the approximate amount of the quarterly beat and now expects full year EPS between $4.45 and $4.70 v. prior $4.15 and $4.50 compared to current FY/17 consensus of $4.28. Revenue guidance was raised to $4.70bn - $4.85bn v. $4.6bn - $4.8bn prior.

We reiterate our BUY rating and $80 PT on PRGO shares.

Dewey Steadman, Canaccord Genuity Research,, August 10, 2017