Perrigo's Weak Near-Term Outlook Is Concerning

Perrigo Company plc Ordinary Shares PRGO is considering the potential sale of its non-core businesses, including the lucrative royalty stream from MS drug Tysabri and the prescription pharmaceutical segment.

Argus’ Jacob Kilstein maintains a Hold rating on the company.

Concerns

Expressing concern regarding the weak near-term outlook for Perrigo, Kilstein stated that “the Tysabri sale is unwise given the drug’s outsized contribution to earnings.”

The analyst also expressed concern regarding pricing erosion and uncertainties regarding the company’s strategy.

In addition, following the departure of Perrigo’s CEO, Joseph Papa, and the sharp cut to the 2016 earnings guidance, the stock saw a pull back.

Kilstein also pointed out that “the acquisition of branded consumer health company Omega has resulted in three weak quarters, marked by heavy impairment losses. The company is also facing pricing pressure for generic drugs and increased competition in specialty medicines.”

Unwarranted Premium

On the positive side, however, the company holds a dominant position in the private-label over-the-counter pharma segment, which is quickly taking market share from branded OTC products.

Still, Kilstein believes that the stock’s premium to peers is unwarranted.

The EPS estimates for 2016 and 2017 have been lowered from $7.05 to $6.99 and from $7.76 to $7.48, respectively.