Rising Self-Care Demand And Aging Demographics Will Expand OTC Markets

Key Takeaways

• Deepening retail partnerships and robust innovation pipelines position Perrigo for outsized growth and margin expansion, exceeding current forecasts.
  
• Strategic asset sales and disciplined cost management are set to accelerate profitability and deleverage, while global self-care trends fuel long-term demand.
  
• Weak organic growth, rising competition, operational inefficiencies, industry shifts, and retailer dependence threaten Perrigo's market share, pricing power, and long-term revenue stability.

Catalysts

Provides over-the-counter health and wellness solutions in the United States, Europe, and internationally.

• Analysts broadly agree Perrigo will benefit from increased cost-consciousness driving adoption of store-brand OTC products, but this may significantly understate Perrigo's potential; recent share gains could accelerate as major retail partners deepen category management efforts, unlocking an even larger addressable market and supporting high single-digit to double-digit revenue growth over several years.
  
• Analyst consensus expects portfolio simplification to modestly boost margins, but the scale and speed of recent asset sales paired with aggressive cost initiatives could result in a step-change, not just improvement, with operating margin expansion outpacing peers and enabling Perrigo to rapidly deleverage and ramp earnings per share above current expectations.
  
• Perrigo's evolving innovation platform-including the development of a unified women's health "O" brand and successful Rx-to-OTC switches proven by Opill-positions the company to capture outsized share from future OTC category conversions, multiplying long-term revenue and margin opportunities beyond current forecasts.
  
• With rising global demand for self-care and wellness solutions and expanded access in emerging markets, Perrigo's value-oriented global portfolio is uniquely placed to capture incremental volumes as millions of new middle-class consumers enter the market, setting the stage for sustained top-line growth ahead of market averages.
  
• The company's highly disciplined approach to demand generation-combining advanced retail partnership models, targeted promotions, and data-driven household penetration initiatives-creates powerful network effects that build customer loyalty and annuitized revenues, ultimately driving stronger and more stable cash flow conversion.

Perrigo Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Perrigo compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Perrigo's revenue will grow by 2.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -1.4% today to 4.3% in 3 years time.
• The bullish analysts expect earnings to reach $201.2 million (and earnings per share of $1.46) by about September 2028, up from $-59.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 35.2x on those 2028 earnings, up from -51.5x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 19.0x.
• Analysts expect the number of shares outstanding to grow by 0.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.88%, as per the Simply Wall St company report.

Perrigo Future Earnings Per Share Growth

Risks

• Flat organic net sales growth year-to-date, combined with softness in key categories like infant formula and ongoing category consumption declines in the US and EU, point to limited top-line growth prospects and risk stagnant or lower revenues over the long term.
  
• Increased competitive intensity in core segments (such as infant formula and OTC) and aggressive promotional activity from other brands, along with greater importation of foreign products, threaten Perrigo's market share and price realization, undermining revenue and pressuring gross margins.
  
• Ongoing operational inefficiencies from integration challenges (as seen with production variability and inventory scrap in infant formula), as well as regular restructuring and divestitures, can weigh on cost structure and reduce net margins or earnings growth.
  
• Perrigo's core focus on generic and OTC products, which are vulnerable to long-term industry shifts toward specialty pharmaceuticals, biologics, and personalized medicine, may limit the company's ability to adapt and sustain revenue and margin growth in a changing healthcare landscape.
  
• Heavy reliance on contracts with large retailers for store brand products exposes Perrigo to pricing pressure and the risk of volume or margin loss if major customers consolidate, negotiate aggressively, or shift to alternate suppliers, which threatens both revenue stability and future earnings.

Valuation

• The assumed bullish price target for Perrigo is $40.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Perrigo's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $40.0, and the most bearish reporting a price target of just $27.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $4.7 billion, earnings will come to $201.2 million, and it would be trading on a PE ratio of 35.2x, assuming you use a discount rate of 7.9%.
• Given the current share price of $22.28, the bullish analyst price target of $40.0 is 44.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.