Insiders Are Selling Perrigo

Oct.14.13 | About: Perrigo Company (PRGO)

In this article, I will feature one healthcare company that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

Perrigo Company (NYSE:PRGO) develops, manufactures, and distributes over-the-counter and generic prescription pharmaceuticals, infant formulas, nutritional products, and active pharmaceutical ingredients.

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Insider selling during the last 30 days

Here is a table of Perrigo's insider-trading activity during the last 30 days by insider.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Judy Brown CFO Oct 1 1,416 Yes 17,433 shares 7.5%
Joseph Papa CEO Sep 24 15,000 Yes 116,655 shares + 3,963 options 11.1%
John Hendrickson EVP Sep 18 2,161 Yes 18,279 shares 10.6%
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There have been 18,577 shares sold by insiders during the last 30 days. More details about the Rule 10b5-1 trading plan can be found from this link.

Insider selling by calendar month

Here is a table of Perrigo's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
October 2013 1,416 0
September 2013 30,356 0
August 2013 41,708 0
July 2013 13,411 0
June 2013 13,750 0
May 2013 27,700 0
April 2013 14,072 0
March 2013 22,085 0
February 2013 8,328 0
January 2013 5,000 0
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There have been 177,826 shares sold and there have been zero shares purchased by insiders this year.

Financials

Perrigo reported the fiscal 2013 full-year, which ended June 29, financial results on August 15 with the following highlights:

Revenue $3.5 billion
Net income $441.9 million
Cash $779.9 million
Debt $2.0 billion
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Outlook

Management expects standalone Perrigo full-year fiscal 2014 adjusted earnings per share to be in a range of $6.35 to $6.60 per diluted share, an increase of 13% to 18% from fiscal 2013's $5.61 per diluted share.

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Management expects the acquisition of Elan Corporation to be at least $0.10 accretive to the adjusted earnings per share of standalone Perrigo in fiscal 2014 and between $0.70 and $0.80 accretive in fiscal 2015, including synergies.

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Competition

Perrigo's competitors include Actavis (ACT) and Dr. Reddy's Laboratories (NYSE:RDY). Here is a table comparing these companies.

Company PRGO ACT RDY
Market Cap: 12.20B 18.87B 6.63B
Employees: 9,900 17,700 16,617
Qtrly Rev Growth (yoy): N/A 0.47 0.12
Revenue: 3.54B 6.92B 2.24B
Gross Margin: 0.36 0.48 0.52
EBITDA: 862.10M 1.57B 497.15M
Operating Margin: 0.20 0.12 0.17
Net Income: 441.90M -562.90M 321.18M
EPS: 4.68 -4.38 1.88
P/E: 27.69 N/A 20.69
PEG (5 yr expected): 1.41 1.13 1.04
P/S: 3.45 2.73 2.96
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Perrigo has the highest P/S ratio among these three companies, which could explain some of the insider selling.

Conclusion

There have been three different insiders selling Perrigo and there have not been any insiders buying Perrigo during the past 30 days. Two of these three insiders decreased their holdings by more than 10%. Perrigo has an insider ownership of 0.20%.

Perrigo is trading at a P/E ratio of 27.69 and a forward P/E ratio of 16.10. The company has a book value of $24.78 per share and the stock has a dividend yield of 0.28%.

Before entering short Perrigo, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are relatively high P/S ratio and the intensive insider selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.