Seeking Alpha
Profile| Send Message|
( followers)  

Perrigo Co. (NYSE:PRGO), which recently closed at $119.23, has tripled its stock price over the past four years. Located in Allegan, Michigan and founded in 1887, Perrigo and its subsidiaries develop, manufacture and distribute generic prescription and over-the-counter pharmaceuticals and ingredients, nutritional products and baby formula worldwide. Perrigo sells their products via distributors, wholesalers, hospital systems, chain drug stores, merchandise chains, and supermarkets.

The company has four major operating segments:

1. Nutritional Products, including baby formula and food, dietary supplements, oral electrolytes,
2. Consumer Healthcare, which includes OTC diabetic care, analgesics, cold and allergy, feminine hygiene
3. Rx Pharmaceuticals, such as generic drugs, oral and injectable products, creams, lotions, suppositories, hormones
4. API, including ingredients used by other generic and branded drug companies to manufacture their products

Perrigo also exports medical diagnostic products and pharmaceuticals to Israel through two departments. Those departments are Tayco Diagnostics, which is a diagnostics division of Perrigo-Israel and services hospitals, laboratories, clinics and self-testing markets; and Pharma-Israel, which markets and distributes both Rx and OTC products throughout Israel and has been operating in the Israeli pharmaceutical market for 50 years.

Here are some of the positive aspects of Perrigo Co. as a whole:

· Positive earnings for four consecutive quarters
· Has maintained growth via aggressive acquisitions
· Received FDA approval recently for their 1% testosterone gel
· Started shipping their generic Mucinex version recently
· Increased consumer healthcare revenue every year by 14 percent
· Their earnings per share are projected to increase 9 to 13 percent in 2013
· Perrigo plans to launch 60 more products in 2013
· Perrigo currently holds onto a rather exclusive niche market share as the country's leading manufacturer of private label OTC drugs

Two major factors help to bolster Perrigo's long-term growth. Earnings are much higher for Perrigo's distributors who buy direct from them, like pharmacies for instance, due to the fact that generic or private label drugs and other products offer a better buy to consumers due to their lower price points. This is especially true when the economy creates the need in consumers for cutting back and therefore, based upon these factors, there are more definitive reasons for Perrigo to continue to grow and expand into those markets. Perrigo's primary markets and areas of operations include the UK, Israel, Australia, China, India, Mexico and the U.S.

Recent Events:

Perrigo's recent cash purchase of the privately held corporation, Velcera Inc. for around $160 million, creates an exceptional synergy between Perrigo and Velcera that promises to offer better pet care products to consumers at lower prices. Velcera is a prominent pet health product company that has long been known for its commitment to delivering the very best pet healthcare products to consumers at a better price than branded veterinary products, but with the same ingredients. The FidoPharm subsidiary of Velcera is well known for a product called PetArmor, which is a generic flea and tick treatment that was launched two years ago and is comparable to Frontline at a lower price and also carries a money back guarantee.

Perrigo also recently purchased Rosemont pharmaceuticals Ltd., a UK based pharmaceutical company that was founded in 1967. Rosemont manufactures and markets oral liquid formulations and the acquisition cost Perrigo $283 million. This acquisition will provide Perrigo with the opportunity to expand the company's UK portfolio while moving into a lucrative specialty market. The easier-to-swallow oral products market represents excellent opportunities for Perrigo's continued growth.

Perrigo's recent segway into the pet food and baby formula markets could see both areas creating more solid growth for the company. In addition, the company has been steadily working to build up their business in the branded drug arena, so there's every reason to believe that there's more growth to come for Perrigo.

In addition, Perrigo's recent release of a generic equivalent of the popular cold remedy, Mucinex, is a major achievement since it is the first store brand counterpart that has received approval by the FDA. It is currently being marketed as a superior value product with the same ingredients as the more expensive branded version. Perrigo is committed to providing high-quality products to consumers at an affordable price. It would seem that this commitment will help them to continue fueling the growth of the past few years.

Potential Growing Pains:

On the other side of the coin, it should be noted that Perrigo is currently bearing the weight of a great deal of operational risk since they have been on a bit of an acquisition binge of late. They have, in fact, purchased numerous companies in a somewhat short period of time. This could create a few issues with the integration that could keep upper management quite busy and could ultimately affect their bottom line.

This, however, seems to be the only possible negative when it comes to Perrigo's future performance. Acquisitions are good for growth and, as long as they don't pose significant cash drains on the company while assimilating the new operations, those acquisitions can only serve to add substantial top and bottom line growth. Because of this, most investors would not consider it to be a negative at all.

Conclusion:

If past performance is any indication of future growth, the stock should continue its impressive track record. A good solid growth plan and a finger on the pulse of rising consumer need for higher quality products at lower prices seems to be continually fueling Perrigo's growth year after year. Perrigo's ongoing commitment to providing the best in all areas of healthcare products to their end customers at lower prices, while growing their worldwide presence along with their bottom line, seems to make it a good investment for the future. Especially considering the aging population and ever growing need for affordable medication. I am bullish on the outlook for Perrigo.

Source: Perrigo - A Healthy Bet For Your Portfolio