Argus Sees Perrigo Going Lower After CEO Exit, Guidance Cut

Perrigo Company plc Ordinary Shares PRGO shares have come under significant pressure after CEO Papa stepped down and the company reduced its guidance. Argus’ Jacob Kilstein downgraded the rating for Perrigo to Hold, citing the “resulting uncertainty over the company’s strategy.”

Challenges Faced

CEO Papa had put up a massive fight to ward off a takeover by Mylan NV MYL. The CEO had indicated that the offer price of $26 billion was too low. Kilstein pointed out, however, that the company was now valued at $14 billion, following the recent pullback. “In hindsight, we feel the deal rejection was a mistake.”

Perrigo recently announced a 13 percent reduction in its earnings guidance. This, and the CEO’s exit, caused the shares to plummet. Moreover, the acquisition of Omega resulted in two quarters of heavy impairment and poor results, Kilstein noted. He mentioned that additional headwinds came in the form of pricing pressures in generics and competition in specialty medicines.

Discount Warranted

“Perrigo has a leading position in private-label over-the-counter (OTC) pharmaceuticals, which are rapidly taking market share from brand-name OTC products,” Kilstein wrote. He added that the company was expanding into Europe. Despite these positives, the shares were trading at the low end of their historical range and below the peer average. The analyst believes this discount is warranted, given Perrigo weak outlook.