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Goldman Selling Perrigo, Prefers Mylan And Teva

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Perrigo Company plc Ordinary Shares PRGO shares plunged after the company announced a change in CEO and reduced its EPS guidance for 1Q and FY16, citing Rx pricing pressure, lower expectations from Omega and fewer new product launches. Goldman Sachs’ Jami Rubin reiterated a Sell rating for the company, while lowering the price target from $124 to $95.

Although Perrigo’s shares declined 18 percent following news of the CEO change and reduced guidance, there is further downside due to “low visibility, uncertainty on growth drivers and execution risk in other parts of the business,” analyst Jami Rubin wrote.

Investment Thesis

Rubin mentioned that the Sell thesis was based on:

  1. Low visibility into consumer health, which is tracking below expectations
  2. Execution risk related to Omega, which may take longer to recover
  3. Pressure on Rx growth and margins
  4. Increasing competition Tysabri, putting the royalty stream under pressure

Estimates Reduced

The EPS estimates for 2016, 2017 and 2018 have been reduced from $9.51 to $8.30, from $10.98 to $9.23 and from $11.79 to $10.06, respectively.

Investment Recommendations

Perrigo’s shares should not reflect expectations of high, sustainable growth, since this has not materialized. Rubin believes that shares of Mylan NV MYL and Teva Pharmaceutical Industries Ltd (ADR) TEVA reflect a better risk/reward. Both stocks are rated Buy at Goldman Sachs.

“We prefer MYL and TEVA within the generic space given their broad, diversified portfolios (compared to PRGO’s niche generic portfolio) along with AGN’s generic business, all of which have highlighted mid-single digit price erosion,” Rubin wrote.

Apr 2016BarclaysMaintainsOverweight
Apr 2016Morgan StanleyMaintainsEqual-weight
Apr 2016JefferiesDowngradesBuyHold

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