Perrigo Company: Timely Buy Of The Week?

Perrigo Company (PRGO), which manufactures and distributes over-the-counter (OTC) and prescription pharmaceuticals, nutritional products and consumer products, is expanding as consumers switch from more expensive, brand-name products to cheaper items in a slowing economy.

PRGO, headquartered in Allegan, MI, has manufacturing and logistics facilities in the United States, Israel, United Kingdom, Mexico, Germany and China.

The company is one of the largest suppliers of branded products to retailers. Perrigo supplies products in more than 15 categories and 500 formulas and offers analgesics, cough and cold remedies, and gastrointestinal and feminine hygiene products, as well as vitamins, dietary supplements and nutritional drinks.

The products are manufactured to compare to national brand products such as Tylenol, Advil or ONE-A-DAY. For example, Tylenol has acetaminophen as an active ingredient and is available in drug stores.

Perrigo’s acetaminophen is located right next to the national brand acetaminophen, offering the same active ingredient (acetaminophen) and the same relief. The store brands are marketed under their own labels, such as Walgreens or Wal-Mart.

Perrigo Expanding Michigan Operations

On July 15, Perrigo announced it would spend $10.5 million to expand facilities at its headquarters in Allegan, MI. The company said the expansion would add approximately 400 jobs over the next 5 years.

“In these tough economic times, Perrigo continues to help the consumer by providing quality, affordable healthcare products,” said Joseph C. Papa, Perrigo’s president, chairman and CEO.

“We see many new opportunities to further reduce consumer healthcare costs. Many brand products’ exclusivity rights will expire soon, and this will allow us to develop additional high-quality, store-brand versions at an affordable price.”

The State of Michigan is providing the company with $8.4 million worth of tax credits over 12 years. The City of Allegan also intends to approve real and property tax abatements worth an estimated $1.4 million.

Perrigo Reported Record Sales for the Third Quarter

On May 6, Perrigo reported third quarter earnings and beat Wall Street estimates by 4.76%, or 2 cents a share. Net income jumped 134% to $40 million, or 42 cents per share, from $17 million, or 18 cents per share, in the third quarter 2007. Analysts expected 42 cents per share.

Sales climbed 39% to a record $503.7 million from $362.3 million in 2007. The company launched two of the largest products in its history, Omeprazole and Cetirizine, during the quarter.

Perrigo’s Fundamentals

Perrigo, a Zacks #1 Rank (Strong Buy), has a five-year average return on equity (ROE) of 12.53%. Its forward P/E is 18.85. PRGO has a price-to-book (P/B) of 3.9. The company also pays a dividend, with a current yield of 0.60%.

PRGO reports fourth quarter earnings on Aug 21.

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