We have downgraded
) to Neutral from Outperform following the disappointing revenue
numbers put out by the company in the fourth quarter of fiscal 2012
(ended June 30, 2012). The stock carries a Zacks #3 Rank (Hold
rating) in the short run.
Perrigo's fourth quarter fiscal 2012 revenues of $832 million
fell short of the Zacks Consensus Estimate of $854 million,
primarily due to weakness in the Consumer HealthCare (CHC)
Total revenues were, however, up 18% year over year aided by the
inclusion of $58 million of net sales from Paddock Laboratories
(acquired by Perrigo in 2011) and $10 million from CanAm Care
(whose assets were acquired by Perrigo in January 2012).
Apart from the CHC segment, Rx Pharmaceuticals (generic) segment
sales, which were very encouraging in the first three quarters of
fiscal 2012, were also disappointing in the final quarter, flat
Moreover, Perrigo, which narrowly beat the Zacks Consensus
Estimate in terms of earnings mainly due to a low tax rate, expects
fiscal 2013 earnings in the range of $5.30-$5.50, up 6%-10% from
$4.99 per share recorded in fiscal 2012. The forecasted growth
range is below the growth exhibited by the company in the last few
years. The revenue miss and the below par guidance had a negative
impact on the shares.
Furthermore, the stiff competition confronting the store brand
products at Perrigo from big companies is a challenge for the
company. The market for over the counter (OTC) pharmaceutical,
generic prescription drugs and nutritional products is also highly
competitive. Some of Perrigo's competitors are
Dr. Reddy's Laboratories
) -- OTC section,
) -- Rx Pharmaceuticals segment and
) -- infant formula unit, among others.
We are impressed by Perrigo's growth-by-acquisition strategy. 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. Such
prudent acquisitions should drive growth at Perrigo in the coming
We are also impressed by Perrigo's strong pipeline. On the
fourth quarter fiscal 2012 conference call, the company announced
that it intends to launch more than 60 new products in fiscal 2013,
which could generate revenues of more than $190 million.
ABBOTT LABS (ABT): Free Stock Analysis Report
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