Merrill Lynch has downgraded pharmaceutical company Perrigo Company (Nasdaq:PRGO; TASE:PRGO) to "Neutral."
However, despite the downgrade the analyst described Perrigo as "still solid." Merrill Lynch said, "We continue to see Perrigo as a core holding and believe that management is doing the right things to enhance near- and long-term value. As we previously noted, we believe that investors will continue to appreciate and pay for Perrigo's long duration cash flows. That said, we believe that at current levels the stock’s sector-high P/E multiple (19x on 2010E vs. 13x overall group average) largely reflects Perrigo's thematic appeal, strong management team, and the likelihood for upward EPS revisions."
Merrill Lynch feels that acquisitions and international expansion lay ahead for the pharmaceutical company. The analyst said, "We believe that recent and expected launches provide good visibility for near/midterm EPS. Longer term, stock performance may increasingly depend on management’s ability to identify and integrate acquisitions and/or expand into new markets. The company has indicated numerous times that it is exploring acquisitions for Consumer (in “adjacent” categories), and acquisitions or building new operations, or both, in ex-US markets. In addition, we would not be surprised to see deals in the Rx business if niche-oriented assets become available. We have confidence that this management team will remain disciplined in deploying capital prudently, and so far execution on deals has been solid."
Merrill Lynch continued, "In keeping with its international expansion goal, PERRIGO recently announced that it acquired Orion Labs, a leading supplier of over-the-counter (OTC) store brand pharmaceutical products in Australia and New Zealand, for $48 million in cash. Management expects the acquisition to add more than $30 million in sales annually and be accretive to earnings in the first year. As a result, we are bumping up our F2011 and F2012 EPS estimates to $3.05 and $3.42 (from $3.04 and $3.38) and bumping our price objective (target price) to $55 from $53, based on a 16x multiple (same as prior target) applied to our new C2011 EPS estimate of $3.35 (up from $3.31)."
Perrigo's share fell 0.52% on the TASE today to NIS 191.30. On the opening on Nasdaq the share was down 0.79% to $50.33, giving a market cap of $4.59 billion.
Merrill Lynch was bought by Bank of America in 2008 and is now a wholly-owned subsidiary of the bank.
Published by Globes [online], Israel business news - www.globes-online.com - on March 8, 2010
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