Americas Awards And Supply Chain Savings Will Fuel Future Performance

Key Takeaways

• Strategic investments in OTC brands and enhanced supply chain efficiencies are poised to improve Perrigo's operating margins and revenue growth.
  
• U.S.-based manufacturing strength positions Perrigo to benefit from shifts in consumer behavior, bolstering revenue and market presence.
  
• Macroeconomic uncertainties and tariff challenges could impact Perrigo's net margins, revenue growth, and cost management, particularly in oral care and infant formula.

Catalysts

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

• Perrigo's new business awards in the Americas are expected to more than offset recent losses by the second quarter of this year, potentially driving revenue growth once the effects are fully realized.
  
• The company has achieved significant cost savings through its supply chain reinvention program and Project Energize, improving service levels and operating margins, which could boost earnings and net margins.
  
• Perrigo's strategy of leveraging cash flow from store brands to invest in higher-margin OTC brands has shown solid organic growth, which may enhance revenue and net margins in the future.
  
• Enhanced product development processes and high-growth brands are expected to deliver significant benefits starting in the second half of next year, potentially increasing revenue.
  
• Opportunities in contract manufacturing and OTC store brand volume gains, due to Perrigo's significant U.S.-based manufacturing capabilities, could impact revenue positively in an environment of shifting consumer behavior.

Perrigo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Perrigo's revenue will grow by 2.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -3.8% today to 4.6% in 3 years time.
• Analysts expect earnings to reach $213.3 million (and earnings per share of $1.25) by about May 2028, up from $-164.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $267 million in earnings, and the most bearish expecting $161 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.2x on those 2028 earnings, up from -22.5x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 17.0x.
• 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 7.28%, as per the Simply Wall St company report.

Perrigo Future Earnings Per Share Growth

Risks

• Tariffs and macroeconomic uncertainties present a risk, particularly with increased costs in the U.S. oral care category due to reliance on imported inputs from China, potentially impacting Perrigo's cost of goods sold and net margins.
  
• There is concern about the impact of competitive pressure and promotional activity in the infant formula category, which could affect revenue growth and profit margins if national brands reduce the price gap with store brands.
  
• The uncertain macroeconomic landscape, including inflation, interest rates, and reduced consumer confidence, might dampen consumer demand across Self-Care categories, potentially affecting Perrigo's revenue and net sales growth targets.
  
• The widening of the 2025 net sales projections highlights the uncertainty in forecasting consumer behavior and potential impacts on Perrigo's revenue projections and earnings.
  
• Despite growth prospects in contract manufacturing, the fluid tariff landscape and dependency on global supply chains may increase costs and operational risks, which could challenge Perrigo's ability to protect its P&L, thus impacting net margins and earnings.

Valuation

• The analysts have a consensus price target of $34.6 for Perrigo based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $42.0, and the most bearish reporting a price target of just $27.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.7 billion, earnings will come to $213.3 million, and it would be trading on a PE ratio of 28.2x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $27.01, the analyst price target of $34.6 is 21.9% 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.