Market Overview

RBC: Perrigo's Near-Term Risk Lessens, But Long-Term Issues Persist

Share:
RBC: Perrigo's Near-Term Risk Lessens, But Long-Term Issues Persist
Related PRGO
Health Care Has Been On Fire. Will The Uptrend Continue?
10 Biggest Price Target Changes For Tuesday

Perrigo Company plc Ordinary Shares (NYSE: PRGO) impressed investors with third-quarter earnings Thursday and issued encouraging guidance that led some of Wall Street's bears to revisit their thesis on the pharmaceutical manufacturer. 

The Analyst

RBC Capital Markets' Randall Stanicky.

The Rating

Stanicky upgraded Perrigo's stock rating from Underperform to Perform with a price target boosted from $64 to $86. (See Stanicky's track record here.)

The Thesis

Heading into Perrigo's earnings report, the bearish case was based on the belief that growth in the core U.S. consumer market was "overstated," Stanicky said in the upgrade note. While this view hasn't necessarily changed, there are no signs of erosion trends in the business, he said.

Over the near-term, Nexium will contribute some support and help avoid a "material disappointment," but for the stock to work over the medium term, the company needs growth to accelerate, Stanicky said. 

Perrigo's generic business remains a "swing factor and conundrum," and is "over-earning" at 36 percent of 2017E EBIT, the analyst said. It's unclear if the unit is up for sale, but what is clear is that at some point capital needs to be deployed to "bolster what is still a relatively limited pipeline," Stanicky said. 

Any accretive capital deployments could be seen as a "potential source of upside" given the company's prior delevering initiatives, he said. 

"We cannot justify upside against what are still potential 2018E concerns including Rx pressure, more limited CHCA growth and comping of cost cuts that have been helping support P&L," Stanicky said. "But again, our history with PRGO is that when we see P&L momentum and upward revision, the stock can trade at perceived premium valuations."

Price Action

Shares of Perrigo were trading lower by around 1 percent Friday morning.

Related Links:

5 Biggest Price Target Changes For Friday

Benzinga's Top Upgrades, Downgrades For November 10, 2017

Photo courtesy of Perrigo. 

Latest Ratings for PRGO

DateFirmActionFromTo
Aug 2018Wells FargoMaintainsMarket PerformMarket Perform
Aug 2018RBC CapitalMaintainsSector PerformSector Perform
Aug 2018JP MorganMaintainsNeutralNeutral

View More Analyst Ratings for PRGO
View the Latest Analyst Ratings

Posted-In: Generic drugs Nexium Perrigo Randall StanickyAnalyst Color Health Care Analyst Ratings General Best of Benzinga

 

Related Articles (PRGO)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
AAPLWedbushInitiates Coverage On310.0
DHTJP MorganUpgrades0.0
DISBarclaysUpgrades130.0
DXCMGoldman SachsUpgrades125.0
ORLYJP MorganUpgrades398.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Mid-Afternoon Market Update: Esterline Drops Following Downbeat Q4 Results; Alteryx Shares Jump

'Digital Industrial' Firms Talk Pros And Cons Of Automation, AI At Detroit Summit