We have maintained our Neutral rating on
) with a target price of $112.00. Our long-term recommendation is
in line with the Zacks #3 Rank carried by the stock in the
Last month, Perrigo reported its third quarter fiscal 2012
(ended March 31, 2012) earnings results. The third quarter earnings
(including the tax benefit of $0.20 but excluding other adjusted
items) of $1.41 handsomely beat the Zacks Consensus Estimate of
$1.21 per share. Third quarter earnings increased 31.8% from the
year-ago period. Earnings were boosted by higher revenues.
Net sales in the third quarter climbed 12.5% to $778 million
aided by the inclusion of $70 million of net sales from Paddock
Laboratories (acquired in 2011) and CanAm Care (whose assets were
acquired by Perrigo in January 2012). Moreover, newly launched
products boosted sales by $64 million in the third quarter of
fiscal 2012. However, revenues fell short of the Zacks Consensus
Estimate of $825 million. Weakness in the Consumer HealthCare and
Nutritional segments contributed to the lower-than-expected
revenues in the third quarter.
The Rx Pharmaceuticals (generics) segment continued to perform
well and recorded an 84% increase in sales compared to the year ago
quarter. We are pleased by the growing generics business at
Perrigo. We note that the generic unit of Perrigo has seen quite a
few approvals over the past few weeks including its generic version
of hyperphosphatemia drug, Phoslo Gelcaps, and the generic version
of KV Pharmaceutical Company's vaginal cream Gynazole 1 for the
local treatment of vulvovaginal candidiasis. The segment is
expected to continue performing well thereby driving growth at
Perrigo is constantly launching new products to sustain growth.
On the third quarter fiscal 2012 conference call, Perrigo announced
that it has launched new products worth $160 million revenues so
far in fiscal 2012. Important product launches in fiscal 2012
include the store brand version of
) Claritin-D tablets for the treatment of nasal allergy symptoms
(February 2012), the store brand version of Rogaine Foam (March
2012) and the store brand version of
) heart burn drug Prevacid (May 2012).
However, we remain concerned by the below par performance of the
Consumer HealthCare segment over the past few quarters. If the
segment fails to meet management's expectations or continues to
generate poor revenues, the top-line will suffer significantly, as
this segment accounts for the majority of Perrigo's revenue. During
the third quarter of fiscal 2012, segmental results were hurt by a
mild cold and flu season. Perrigo trimmed its view regarding
revenue growth for fiscal 2012 to 15%-18% (old guidance: 17%-20%)
due to the same reason.
Moreover, Perrigo's strong results in the last few quarters have
benefited from external events rather than its core business. For
example, the company has benefited from product recalls by
Johnson & Johnson
) in the past few quarters. Recalls at rival companies are not
occurrences that happen every year and may not benefit Perrigo in
the coming quarters.
In view of these challenges, we see limited upside potential of
the stock from current levels.
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