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Is Perrigo a Buy After Reporting Q1 Earnings?

The shares of leading baby formula maker Perrigo Company (PRGO) have been soaring in price of late amid a nationwide baby formula shortage. So, because the crisis is expected to continue through the coming months, will PRGO be able to maintain this momentum in the near term? Read more to learn what we think.

Headquartered in Dublin, Ireland, Perrigo Company plc (PRGO) is a health and wellness solutions company. It sells over-the-counter products through two segments: Consumer Self-Care Americas; and Consumer Self-Care International. The company has an ISS Governance QualityScore of 1, indicating low governance risk. It currently controls 8% of the total U.S. baby formula market share. PRGO’s net sales increased 6.4% year-over-year to $1.07 billion in its fiscal first quarter ended April 2, 2022. This can be attributed to a 9.7% rise in organic net sales. Its cash flow from operating activities has improved significantly from its year-ago value to $79.10 million.

Regarding this, PRGO President and CEO Murray S. Kessler commented, “We delivered another quarter of very strong organic net sales growth as consumer demand driven sales again strengthened sequentially. The categories in which we compete are growing and remain on-trend, and the products in our portfolio that were most disrupted by the pandemic, including cough/cold, have rebounded. The strong performance of our U.S. infant formula business, which benefited from innovation and availability while a competitor experienced quality issues, was also notable.”

However, the company’s gross profit declined 8.3% from the same period last year to $337.80 million, while its operating income fell 57.8% from the prior-year quarter to $21.70 million. Its net loss came in at $2.40 million, compared to $38.1 million in income reported in the prior-year quarter. Its loss per share amounted to $0.02, compared to $0.28 earnings in the same period last year. Shares of PRGO slumped 4% in price during premarket trading on May 11 after the company reported disappointing first-quarter results. However, the baby formula shortage in the U.S. has fostered bullish investor sentiment in PRGO. The stock has gained 8.4% over the past month and 3.8% over the past five days, outperforming the benchmark S&P 500 index.

Here is what could shape PRGO’s performance in the near term:

Mixed Growth Prospects

Analysts expect PRGO’s revenues to rise 7.7% year-over-year to $1.60 billion in its fiscal second quarter ending June 30, 2022. However, the $0.40 consensus EPS estimate for the current quarter indicates a 19% decline from the same period last year.

The Street expects the company’s annual revenues to rise 9.1% year-over-year in its fiscal 2022 and 6.9% from the same period last year in fiscal 2023. PRGO’s yearly EPS is expected to grow 11.4% in the current year and 40.1% next year.

Discounted Valuation

PRGO’s 16.37 forward non-GAAP P/E multiple is 15.1% lower than the 19.29 industry average. In terms of forward Price/Sales, PRGO is currently trading at 1.12x, which is 74.4% lower than the 4.37 industry average. In addition, the stock’s 0.78 forward non-GAAP PEG ratio is 57.5% lower than the 1.84.industry average.

Furthermore, PRGO’s forward EV/EBITDA and Price/Book multiples of 10.86 and 1.61, respectively, compare with industry averages of 12.94 and 2.70. Its 1.50 forward E.V./Sales is 58.1% lower than the 3.59 industry average.

Consensus Rating and Price Target Indicate Potential Upside

Each of the two Wall Street analysts that rated PRGO rated it Buy. The 12-month median price target of $51 indicates a 35.7% potential upside from yesterday’s closing price of $37.58. The price targets range from a low of $48.00 to a high of $54.00.

POWR Ratings Indicate Uncertainty

PRGO has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

PRGO has a C grade for Stability and Quality. The stock’s relatively high 1.02 beta is in sync with the Stability grade. In addition, PRGO’s trailing-12-month EBITDA margin of 10.59% is 168.7% higher than the industry average of 3.94%. However, the company’s negative net income margin and ROE justify the Quality grade.

Of the 166 stocks in the F-rated Medical – Pharmaceuticals industry, PRGO is ranked #56.

Beyond what I have stated above, view PRGO ratings for Growth, Momentum, Sentiment, and Value here.

Click here to checkout our Healthcare Sector Report for 2022

Bottom Line

The recent baby formula shortage crisis in the United States has resulted in bullish investor sentiment regarding OTC baby formula makers like PRGO. The company has stepped up its efforts to boost its baby formula production, with its formula manufacturing facilities in Ohio and Vermont running at 115% capacity. CEO Kessler said, “We have stepped up and are killing ourselves to do everything we can.”

However, the company’s negative profit margins and disappointing first-quarter results are a cause for concern. Thus, we think investors should wait until PRGO’s profit margins improve before investing in the stock.

How Does Perrigo Company (PRGO) Stack Up Against its Peers?

While PRGO has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Merck & Co. Inc. (MRK), Novo Nordisk A/S (NVO), and Novartis AG (NVS), which have an A (Strong Buy) rating.


PRGO shares were trading at $37.90 per share on Friday morning, up $0.32 (+0.85%). Year-to-date, PRGO has declined -1.84%, versus a -17.51% rise in the benchmark S&P 500 index during the same period.



About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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