Morgan Stanley Cuts Perrigo's Price Target To $112, Expects Lower Long-Term Growth

While naming its new CEO, Perrigo Company plc Ordinary Shares (NYSE: PRGO) also lowered its 2016 guidance, within nine weeks of having issued it.

Morgan Stanley’s David Risinger maintained an Equal-Weight rating on the company, while lowering the price target from $151 to $112, to reflect expectations of slower growth.

Estimates Lowered

Pointing out Perrigo Company’s financials continued to be 2H weighted and dependent on new launches, Risinger lowered the 2016 EPS estimate from $9.65 to $8.25, 2 percent below the midpoint of the revised guidance.

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The 2017 EPS estimate was also reduced from $10.84 to $9.24. The long-term growth expectations were also lowered.

“Although we believe Perrigo's Consumer businesses should trade at a more substantial premium, they only represent about half of earnings; the other half of the portfolio (generic Rx and Tysabri) should trade at a discount, in our view,” Risinger stated.

Slower Long-Term Growth

The analyst believes that the new CEO, John Hendrickson, should consider lowering the company’s previous organic revenue growth target of 5–10 percent to about 5 percent, given that “Mgmt discussed a tougher pricing environment for generics and "weaker-than-expected" performance in BCH.”

The four-year revenue CAGR (2016–2020) estimate has been lowered from 5 percent to 4 percent.