PRGO: Future Upside Will Depend On Infant Formula Business Resolution

Analysts have lowered their price target on Perrigo to $20 from $32 as they factor in slower than expected recovery in the infant formula segment, rising competitive pressures, and increased uncertainty around over the counter market trends over the next year.

Analyst Commentary

Bullish analysts highlight that Perrigo's core franchise remains intact despite near term turbulence. The new $20 price target reflects a reset valuation baseline that may better capture execution risk and market uncertainty over the next year.

They note that Perrigo's diversified consumer health portfolio and established distribution channels could still support mid term growth once visibility improves around infant formula recovery and over the counter category trends.

Some also point to the potential for operational efficiencies and disciplined capital allocation to stabilize margins, suggesting that successful cost initiatives and portfolio optimization could justify multiple expansion from depressed levels over time.

Bullish Takeaways

• Bullish analysts view the lower price target as embedding more realistic assumptions on near term growth, which could limit further downside if execution stabilizes.
• There is confidence that Perrigo's branded and store brand consumer health positioning provides a solid base for long term demand resilience once market noise subsides.
• Improved clarity on infant formula capacity, competitive dynamics, and regulatory backdrop could act as catalysts for multiple re rating over the next 12 to 18 months.
• The reset expectations create room for upside surprises if management delivers on cost savings and restores growth in key categories faster than currently modeled.

Bearish Takeaways

• Bearish analysts see the slower than anticipated infant formula recovery as a structural headwind that could weigh on both top line growth and operating leverage.
• Rising competitive pressures in store brand and over the counter categories raise concerns about sustained pricing power and share retention, pressuring Perrigo's margin outlook.
• Limited visibility into over the counter market trends over the next year increases the risk of further estimate cuts, constraining near term valuation upside.
• JPMorgan's move to a Neutral stance with a $20 target underscores skepticism that management can quickly re accelerate growth, leading some investors to wait for clearer signs of a turnaround before revisiting the shares.

What's in the News

• Perrigo initiates a strategic review of its infant formula business, considering a full range of alternatives as part of its Three S plan to stabilize, streamline, and strengthen the portfolio, with no set timeline or guaranteed outcome for a transaction (Key Developments).
• The company lowers its 2025 full year guidance, now forecasting net sales decline of 2.5% to 3.0%, citing challenging infant formula industry dynamics and softer over the counter consumption trends (Key Developments).
• A class action lawsuit is filed in the U.S. District Court for the Southern District of New York alleging Perrigo misled investors about the condition, required investment, and financial impact of its acquired infant formula business, with investors given 60 days from notice to seek lead plaintiff status (Key Developments).
• Perrigo faces labor unrest at its Bronx manufacturing facilities, where 160 Teamsters Local 210 members went on strike over proposed changes to overtime protections and retirement contributions and are scheduled to return to bargaining on September 17, 2025 (Key Developments).
• Opill, Perrigo's over the counter daily birth control pill, partners with self care brand Chillhouse on an Opill and Chillhouse campaign featuring limited edition press on nails and a product donation initiative supporting the New York Birth Control Access Project (Key Developments).

Valuation Changes

• Fair Value: Unchanged at approximately $21.50, indicating no adjustment to the intrinsic value estimate.
• Discount Rate: Fallen slightly from about 8.64% to 8.54%, implying a modest reduction in perceived risk or cost of capital.
• Revenue Growth: Fallen significantly from roughly 36.9% to 28.7%, reflecting a more cautious outlook on top line expansion.
• Net Profit Margin: Risen marginally from about 3.96% to 3.97%, suggesting a slightly improved long term profitability profile.
• Future P/E: Edged down slightly from approximately 22.65x to 22.59x, indicating a nearly stable earnings multiple assumption.