We have upgraded our rating on Perrigo Company (PRGO) from Neutral to Outperform with a target price of $113.00 following appraisal of the first quarter fiscal 2012 earnings.
Perrigo Company reported earnings per share of $1.10 for the first quarter of fiscal 2012, beating the Zacks Consensus Estimate of $1.03 and the year-earlier earnings of $0.87 per share. Light sales performance was offset by a lower tax rate to drive earnings growth.
First quarter revenues increased approximately 13% over the prior year to $725.3 million. Total revenues were, however, below the Zacks Consensus Estimate of $748 million. Strong performances by the Active Pharmaceutical Ingredients (API) and Rx Pharmaceuticals segments were offset by sluggish revenues from the company’s Nutritional and Consumer HealthCare businesses due to competitive pressures.
Perrigo upped fiscal 2012 adjusted earnings per share outlook from $4.50–$4.65 to $4.65–$4.80, which implies a growth of 16%–20% from the comparable fiscal 2011 earnings per share of $4.01. The guidance was increased on the basis of a strong pipeline and production efficiency gains. The top line is now expected to grow in the range of 17% to 20% over fiscal 2011, up from prior expectations of 15% to 18%, on the strength of new product launches. Following the cue, we also upped our revenue and earnings estimates for fiscal 2012 slightly.
In the OTC pharmaceutical market, products are sold due to changes in product status from prescription (Rx) only to non-prescription (OTC). Management estimates that $10 billion in branded prescription sales will move to OTC status in the next five years, thus resulting in significant switch opportunities for Perrigo in the years to come. Perrigo acquired exclusive sales and distribution rights to its OTC store brand version of generics of Sanofi Aventis’ (SNY) Allegra (for seasonal allergies) and Allegra D, from Teva Pharmaceuticals (TEVA) in June 2010. Perrigo's partner Teva received approval to sell its OTC version of generic Allegra and Allegra D in April 2011 and launched the product immediately. This is an important product launch for Perrigo and will benefit sales, going forward.
Perrigo also has an impressive pipeline which could drive growth in fiscal 2012 and beyond. The company expects to launch more than 45 new products in fiscal 2012 which are expected to add revenues worth $190 million.
We believe that Perrigo’s strong position in the brand OTC pharmaceutical market and growing generics and API businesses along with an impressive pipeline will drive growth in fiscal 2012 and beyond. We have, thus, upgraded our rating from Neutral to Outperform to reflect a better growth outlook for fiscal 2012.
PERRIGO COMPANY (PRGO): Free Stock Analysis Report
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TEVA PHARM ADR (TEVA): Free Stock Analysis Report
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