Analysts stick with Perrigo despite disappointing Q4

Joseph Papa
Joseph Papa

The average price target for the stock is 33% above the market price.

After the disappointment at the financials and the fall in Perrigo's share price at the end of last week, the analysts covering the pharmaceuticals company are trying to gauge the direction of the company and its stock. Most of them are not changing their recommendations or price targets at this stage, although all agree that the fourth quarter results were disappointing.

According to Thomson/First Call, the average price target for Perrigo is $172, 33% above the current market price, which is at a near two-year low.

The company is dual-listed on Nasdaq and in Tel Aviv with a market cap of $18.9 billion, after seeing $2.3 billion wiped off its value in the two trading sessions following the release of its financials, a drop of 11%.

Perrigo missed the analysts' consensus estimate, reporting quarterly revenue of $1.4 billion, 4.6% more than in the corresponding quarter, and an adjusted net profit of $262 million, or $1.8 per share. The weakness was mainly because of weaker than expected results from Omega, the European company that Perrigo bought a year ago.

At the same time, Perrigo published updated earnings guidance of $9.5-9.8 per share, a few weeks after publishing guidance of $9.5-10.1 per share.

"For many investors, Perrigo's 4Q miss and guidance revision brought a feeling of 'here we go again' on many fronts with concerns that Omega could be another troubled acquisition and numbers for ‘16 could be cut again," writes analyst Douglas Tsao for Barclays. He adds, however, that "CEO Joe Papa and CFO Judy Brown were focused on reassuring investors that the Omega/Branded Consumer Healthcare (BCH) segment’s 4Q challenges were fixable. Improvement won’t come overnight, but we still see it as an attractive platform. We feel better that restructuring initiatives are focused on cutting costs, rather than the need to reinvigorate sales." Tsao's recommendation for Perrigo is an unchanged "Overweight" with a price target, also unchanged, of $180, 39.2% above market.

"The positive factors are stronger than the question marks"

Bank Hapoalim analyst Yaron Friedman wrote in response to Perrigo's financials that "despite the disappointment, there was an overreaction in the stock." He says that the market's response creates an investment opportunity in the stock at a fairly attractive price. "Although the financials and the updated guidance place a question mark over the company's business in Europe, we believe that the positive factors supporting investment in the stock are stronger," Friedman writes. He continues to recommend "Outperform" for Perrigo, with a price target of $189.6, 46.6% above market.

At UBS, the target is even higher, at $194, and the recommendation is "Buy". Analyst Marc Goodman is disappointed with Omega, but mentions favorably the store brand segment and the prescription drugs, which performed well.

Published by Globes [online], Israel business news - www.globes-online.com - on February 22, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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