Perrigo

Perrigo's revenue declined 3% (0.7% from pricing and 2.4% from volume/mix) and adjusted earnings per share fell 12% in the second quarter. 2026 guidance for a 3% sales decline and $2.15 in adjusted EPS, both at the midpoint, was reaffirmed. Shares rose 23% in Aug. 5 intraday trading.

Why it matters: Selfcare and specialty care were both down by low single digits; it is the recovery in infant formula, up 23%, that the market is rejoicing. After a multiyear period of industrywide and firm-specific challenges, Perrigo's infant formula business looks to have turned a corner. However, the first growth driver called out was contract sales timing, so the healthy performance could be one-time. The durability of the recovery is a key area we'll keep a close eye on in upcoming quarters. The remaining nonformula business still looks challenged, with soft seasonality and retailer destocking contributing to headwinds, but management mentioned improvements in certain categories heading into the next quarter.

The bottom line: We maintain our $20 fair value estimate for no-moat Perrigo. Shares still look significantly undervalued even after the Aug. 5 move, but we highlight our Very High Uncertainty Rating. The robust results by no means make us think everything is back to normal. Even after a solid quarter, Perrigo still has a host of questions around the business, including the search for a permanent CEO, the future of the infant formula and oralcare businesses, and macro consumption trends. We think the confidence level on Perrigo had been so depressed over the past few years that any signs of green shoots could turn the tide on the stock. But as we have seen in the past, a quarter of good results and the subsequent stock jump doesn't necessarily mean that the downward momentum is behind us. We would need to see a few more quarters of good progress to have more confidence in the near-term upside.

Our fair value estimate is $20 per share. We highlight our Very High Uncertainty Rating and reiterate our stance that 2026 is likely to be a transition year. Given this, our view on the near-term upside for the stock is mixed, though our long-term outlook remains favorable.

Soft category consumption trends are proving more persistent than previously assumed, and we tempered our near-term growth expectations to reflect a slower top-line recovery and a more gradual margin rebound. Our long-term assumption revision had a bigger impact as we lowered the magnitude of margin expansion over our five-year forecast period. While we still have conviction in Perrigo's ability to drive low-single-digit sales growth in our midcycle year, recent strategic missteps, competitive pressures, and our questions around the portfolio made us reevaluate business efficiencies. Our five-year adjusted EBIT compound annual growth rate is now in the low single digits, down from the midsingle digits.

In the long term, we expect more normalized top-line growth around 2%-3% year over year, thanks to a mix of pricing actions and volume gains. Historically, we have seen a 100- to 200-basis-point increase in the top line from price, mostly from passing along inflation, and we expect a similar strategy for the next five years. While other pure-branded CPG players have been able to weather high inflation by raising their prices accordingly and passing along those rising costs to consumers, as we saw during 2022 and 2023, we see Perrigo’s store-brand business somewhat lacks the full ability to price up its products, given that it mainly participates in a value segment and also faces retailer pressures, which hurts margin. However, we expect this dynamic to slightly improve with Perrigo’s increased exposure to the branded business, since we believe some of its leading brands have strong branding power to raise prices and still maintain shares.

On margin, we expect a mix of bolstered branded portfolio, optimized portfolio, and supply chain reinvention programs to provide tailwinds. Perrigo recently focused on increasing manufacturing efficiency and overall productivity. The firm reduced its inventory to cut nonstrategic brands and product variants. We believe reducing the number of unfavorable product options and focusing on key items and configurations can help improve scale and drive margin. On the other hand, this could also risk upsetting retailers as they might not receive products that they want to sell, although so far, we have not seen this have an adverse impact on the company’s relationship with key retailers.

We assign Perrigo a no-moat rating because we do not believe the company possesses any structural advantages sufficient to generate excess returns over the next 10 years.

Perrigo’s business can be broken into two major segments: store brands (private label) and national brands. We believe Perrigo’s store brand business, which generates more than half of total sales, lacks material competitive advantages over other players to warrant a moat rating. In consumer health, real product differentiation is low, but perceived product differentiation is high, so pricing power is earned through brand reputation. While this is certainly achievable in the industry as we see from players like Kenvue and Haleon, we believe Perrigo is not able to build brand reputation with its private-label business for a multitude of reasons. The most obvious reason is that we believe a retailer has more leverage in the retailer/supplier relationship. Since contracts aren't long-term in nature—usually renegotiated every 12 months—retailers can shift their manufacturing partners over time to secure the best price/terms. And major stores, pharmacies, and online retailers have substantial scale and negotiation leverage in the supply chain, leaving little economic profit to be captured upstream. Furthermore, Perrigo’s private-label products have a specific retailer’s branding on their packaging, so Perrigo’s ability to earn recognition from consumers is little to none. Also, private label is largely seen as value offerings—Perrigo’s store brands are priced on average 30% lower compared with their branded counterparts. We believe these reasons provide minimal opportunities for Perrigo’s private-label business to boast meaningful competitive advantages and to earn excess returns.

The remaining portion of Perrigo’s sales is generated from its branded consumer health products. While the company boasts a wide product portfolio that plays in various categories, including oralcare, nutrition, digestive health, and women’s health, we believe it has brands with neither significant market share nor strong pricing power to earn a moat rating. We identified Dr. Fresh and Firefly as Perrigo’s key brands in North America and Compeed, Coldrex, Solpadeine, and NiQuitin in international markets. Data from Euromonitor shows that these brands rarely possess any meaningful share and are overshadowed by bigger and more recognizable brands. Furthermore, we fail to see any example from Perrigo’s brands that boasts a meaningful pricing premium over its competition. While Perrigo has tried to improve its branded business by divesting nonstrategic brands and purchasing bigger names—adding Compeed and Mederma through the HRA acquisition and acquiring Good Start from Nestlé—we still believe it lags other major players in the industry in having a moatworthy portfolio.

Perrigo is now more tapped into the higher-margin branded consumer health market, which should act as a tailwind to the top and bottom lines.

Because of its presence in private label, we think the company can more easily weather downturns compared with competitors that play solely in the branded market.

Perrigo’s scale and ability to supply a wide range of private-label OTC products is unmatched by other smaller players, which partly protects the company’s relationship with its customers.

By expanding its business to focus more on branded products, Perrigo now faces stiffer competition from larger consumer healthcare product manufacturers.

Many consumer packaged-goods players have significantly larger capital and research budgets, which help them more easily launch products that could displace Perrigo’s brands.

Mismanagement in production could lead to product recalls and result in large settlement fees, putting pressure on Perrigo’s bottom line.