Deutsche Thinks Perrigo's Lowered Expectations Are Beatable

Deutsche Bank maintained its Buy rating on Perrigo Company plc Ordinary Shares PRGO and said the company's lowered 2016 outlook is "meetable/beatable."

The Dublin-based company now expects 2016 earnings in the range of $6.85 to $7.15 per share, down from prior guidance of $8.20 to $8.60 per share.

But, the brokerage is bullish on the company, saying Perrigo is well positioned to capitalize on favorable industry trends. Further, the company is expected to benefit from the durability of the store brand model, which has limited competition and high barriers to entry.

"In particular, we were encouraged by the details provided on the new process the company uses to forecast the Rx Pharma business and management's comments that the pricing dynamic observed so far in 3Q may not be as negative as modeled into guidance," analyst Gregg Gilbert wrote in a note.

Following the company's guidance cut, Gilbert cut his 2016 EPS view to $7.00 (from $8.00), 2017 EPS forecast to $7.32 (from $8.30), and price target to $105 (from $115).

The analyst also lowered his revenue estimates by 3-4 percent based primarily on lower sales for Rx Pharma (about 13-14 percent lower). Gilbert also reduced his gross margin assumptions by about 50bp based on lower gross margin for Rx Pharma.

"On the stock, the scarcity value of PRGO's consumer-facing businesses and their associated growth potential (albeit modest) and durability, could lead to a revaluation of the shares over the next 12+ months if management executes well against the lowered bar," Gilbert added.