Perrigo Smiles at the Future

| About: Perrigo Company (PRGO)

By Brandon Clay

Last week we discussed a Canadian mining company (NXG). This week we travel further south to Michigan. The automotive sector may be in shambles, but the state is still home to a solid healthcare company.

The small town of Allegan, about half-way between Chicago and Detroit offers a bright spot in the dreadful Michigan economy. After a Rockwell Manufacturing plant closed in the 1980s, Allegan became known for the largest county fair in Michigan and drugs – of the legal variety. The town is home to one of the largest over-the-counter (OTC) drug manufacturers in the world: Perrigo Company (NASDAQ:PRGO).

Founded in 1887, Perrigo is now a multinational corporation employing 6,000 people worldwide at facilities in the US, Israel, United Kingdom, Germany, and Mexico and will soon be starting operations in India. The mid-cap firm is almost big enough for inclusion in the S&P 500. In other words, Perrigo is a respectable entity in the Healthcare space paying out a decent 0.7% dividend.

Here are a few reasons we think Perrigo is worth your attention. For one, it’s doing what good companies should do during a down economy: growing. Despite the recession, PRGO reported $2 billion in sales for its fiscal fourth quarter, up 16.2% from a year ago. Gross profits were up 10%, and annual net income grew to $174.6 million – compared to $154.4 million the previous year.

Part of their success has been from acquisitions. In 2008, Perrigo picked up JB Labs in Holland, MI. In addition, they just bought an 85% stake in Mumbai-based Vendants Drugs and Fine Chemicals. This acquisition will help Perrigo build an Indian presence. PRGO plans to move some operations from Germany and Israel to India, which should lead to further operational efficiencies.

Diversification is another reason Perrigo has weathered the economic storm so well. PRGO manufactures analgesics, cold/cough/allergy/sinus, gastrointestinal, smoking cessation, and nutrition drugs. This variety insulates against some of the sector risks. In addition, being multi-national, PRGO has opportunities to expand in European, South American, and now Asian markets. We like PRGO’s prospects for steady, long-term, global growth.

Looking at the chart, Perrigo has been in a solid uptrend since March. The shares have recovered a big gap-down set in February and recently broke above $30. With swine flu and other common ailments likely to spread this winter, we like the near-term prospects for PRGO. Go with PRGO for a solid healthcare pick.


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