Perrigo Company plc Quarterly Valuation – December 2014 $PRGO

220px-Perrigo_LogoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Dow Components to Research – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Perrigo Company plc (PRGO) fares in the ModernGraham valuation model.

Company Profile (obtained from Wikipedia): Perrigo Company plc is an American international manufacturer of private label over-the-counter pharmaceuticals.[2] The company’s shares are traded on the NYSE and the Tel Aviv Stock Exchange; as a result of the merger with Agis Industries the company is a constituent of the TA-25 Index. Perrigo is the only non-Israeli company on the TA-25.  Perrigo Company plc, through its wholly owned subsidiaries, engages in the manufacture and sale of consumer healthcare products, generic prescription drugs, active pharmaceutical ingredients (API), and consumer products primarily in the United States, Australia, Israel, Europe, India and Mexico.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $153.12
MG Value $168.22
MG Opinion Fairly Valued
Value Based on 3% Growth $67.17
Value Based on 0% Growth $39.38
Market Implied Growth Rate 12.28%
Net Current Asset Value (NCAV) -$18.08
PEmg 33.05
Current Ratio 2.59
PB Ratio 2.36

Balance Sheet – September 2014

Current Assets $2,634,000,000
Current Liabilities $1,018,000,000
Total Debt $3,051,000,000
Total Assets $13,781,000,000
Intangible Assets $10,175,000,000
Total Liabilities $5,064,000,000
Outstanding Shares 134,400,000

Earnings Per Share

2015 (estimate) $7.24
2014 $1.77
2013 $4.68
2012 $4.27
2011 $3.63
2010 $2.41
2009 $1.54
2008 $1.43
2007 $0.79
2006 $0.76
2005 -$4.57

Earnings Per Share – ModernGraham

2015 (estimate) $4.63
2014 $3.34
2013 $3.85
2012 $3.17
2011 $2.40
2010 $1.66

Dividend History


Perrigo Company plc is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is concerned only by the high PEmg ratio.  The Enterprising Investor is only concerned by the high level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.40 in 2011 to an estimated $4.63 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 12.28% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Perrigo Company plc (PRGO)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Perrigo Company plc (PRGO) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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