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Perrigo Evenly Poised

Zacks Equity Research

We have reiterated our Neutral recommendation on Perrigo Company (PRGO) with a target price of $113.00. The stock carries a Zacks #3 Rank (Hold) in the short run.

Maintaining Neutral Stance

Perrigo delivered mixed numbers in the first quarter of fiscal 2013 (ended September 29, 2012). Though revenues were short of the Zacks Consensus Estimate, earnings were ahead of the Zacks Consensus Estimate. The company expects fiscal 2013 earnings to grow in the range of 9-13% over fiscal 2012 levels.

We are impressed by Perrigo’s growth-by-acquisition strategy. The company is constantly making acquisitions to expand its business and drive growth. In December 2012, Perrigo acquired privately-held Cobrek Pharmaceuticals, Inc. for approximately $45 million in cash. In January 2012, Perrigo inked a deal to acquire the assets of Georgia-based private company CanAm Care, thereby expanding its presence in the diabetes care market.

In July 2011, Perrigo acquired Paddock Labs to expand its generic Rx business. In April 2010, Perrigo acquired PBM Holdings, Inc., a leading manufacturer and distributor of store brand infant formulas, pediatric nutritional and baby food. Other important acquisitions include Galpharm, Diba and Orion Laboratories. Such prudent acquisitions should drive growth at Perrigo in the coming quarters.

We are also impressed by the series of launches at the generic (Rx Pharmaceuticals) segment of Perrigo. Though encouraged by Perrigo’s strong position in the brand over the counter pharmaceutical market and growing generics and Active Pharmaceutical Ingredientsbusinesses, we remain concerned about the uninspiring performance by the Consumer HealthCaresegment, which accounts for the majority of the company’s revenues.

Other Stocks to Consider

We prefer to remain on the sidelines on Perrigo, an S&P 500 stock. S&P companies that currently look better-positioned include Mylan Inc. (MYL), which carries a Zacks #2 Rank (Buy).

Read the Full Research Report on MYL

Read the Full Research Report on PRGO

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