Perrigo Company passes the initial requirements of the Enterprising Investor but not the more conservative Defensive Investor. Specifically, the Defensive Investor is concerned with the high PEmg and PB ratios, while the Enterprising Investor is only concerned by the level of debt relative to the net current assets. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.
When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $2.40 in 2011 to only an estimated $2.94 for 2015. This level of demonstrated growth does not support the market’s implied estimate for annual earnings growth of 27.22% over the next 7-10 years.
In recent years, the company’s actual growth in EPSmg has averaged around 4.45% annually, but the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, and returns an estimate of intrinsic value well below the current price, indicating that Perrigo is overvalued at the present time.
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