PRGO: Profit Margins And Operational Strength Will Support Long-Term Upside Potential

Key Takeaways

• Strong consumer shift toward store-brand OTC and structural industry tailwinds are driving sustainable revenue growth and stable demand for Perrigo's core product segments.
  
• Portfolio simplification and operational efficiency initiatives are enhancing profitability, supporting innovation investment, and accelerating the company's financial deleveraging.
  
• Weak demand, fierce competition, low pricing power, and operational challenges threaten Perrigo's ability to grow revenue, protect margins, and sustain long-term market share.

Catalysts

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

• Increasing consumer cost-consciousness is driving stronger adoption of store-brand (private label) OTC products, with Perrigo reporting accelerated unit and volume share gains; this structural shift is expanding Perrigo's addressable market and supports enduring top-line revenue growth.
  
• The aging global population and rising consumer interest in self-care and wellness continue to create longer-term demand tailwinds for Perrigo's OTC and nutrition products, providing stable, defensive revenue streams even in periods of macro uncertainty.
  
• Recent new business wins in US store-brand OTC have outpaced distribution losses for the first time since the 2024 reset, with net new contract gains expected to add $75M+ to sales in the second half-directly supporting a step-change in revenue growth and operating income.
  
• Strategic portfolio simplification, including the recent sale of the Dermacosmetics business, allows Perrigo to focus investment on core, higher-growth segments, bolstering gross and operating margins and accelerating deleveraging.
  
• Ongoing operational initiatives like Project Energize and supply chain reinvention are generating $150M–$200M in savings, funding innovation and margin-accretive investments, which are expected to further improve gross margins and net earnings over time.

Perrigo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Perrigo's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.4% today to 4.0% in 3 years time.
• Analysts expect earnings to reach $183.6 million (and earnings per share of $1.32) by about September 2028, up from $-59.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.9x on those 2028 earnings, up from -53.9x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 19.5x.
• 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 7.7%, as per the Simply Wall St company report.

Perrigo Future Earnings Per Share Growth

Risks

• Ongoing soft category consumption in key markets, including declining total category consumption in the U.S. and decelerating consumption in the EU, could indicate underlying secular weakness in demand for OTC and self-care products, which would limit Perrigo's ability to drive sustained top line (revenue) growth over the long term.
  
• Increasing competitive intensity in the infant formula and OTC markets-with heavy promotion, new product launches from competitors, and non-optimal shelf placement-suggests that Perrigo may struggle to maintain or grow market share, potentially constraining both revenue and net margins.
  
• The company's dependence on volume-driven, private label and store brand products-with historically limited pricing power-makes it vulnerable to cost inflation (e.g., raw materials, tariffs) that could compress gross and net margins if cost offsets and price increases are not fully realized.
  
• Product quality and supply chain challenges, such as the recent isolated infant formula production scrap event, introduce risk of variable production costs, lost sales, and potential reputational damage, all of which could negatively impact margins and future earnings if recurring or if quality issues arise.
  
• Slower-than-expected recovery and ramp-up in key businesses (notably infant formula) and headwinds from possible continued importation of foreign products (e.g., European organic formula) highlight structural industry risks and regulatory uncertainties, possibly constraining both Perrigo's market share and long-term revenue/earnings growth.

Valuation

• The analysts have a consensus price target of $34.25 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 $40.0, 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 $4.6 billion, earnings will come to $183.6 million, and it would be trading on a PE ratio of 32.9x, assuming you use a discount rate of 7.7%.
• Given the current share price of $23.33, the analyst price target of $34.25 is 31.9% 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.