February 15, 2009 - Perrigo Co. (PRGO-NASDAQ) through its subsidiaries, develops, manufactures, and distributes over-the-counter (OTC) and prescription (Rx) pharmaceuticals, nutritional products, active pharmaceutical ingredients (API), and medical diagnostic products worldwide. The company operates through three segments: Consumer Healthcare, Rx Pharmaceuticals, and API.

The Rx Pharmaceuticals segment develops, manufactures, and markets generic prescription drug products, including creams, ointments, lotions, gels, shampoos, foams, suppositories, sprays, liquid suspensions, and solutions, as well as nasal sprays, oral liquids, and transdermal products.

The API segment develops, manufactures, and markets APIs used by the generic drug industry and branded pharmaceutical companies. Perrigo Company also manufactures and markets branded prescription drugs; and imports pharmaceutical, diagnostics, and other medical products.

The company has collaborative agreements with Medicis Pharmaceutical Corporation, Medimetriks Pharmaceuticals, Cobrek Pharmaceuticals, and Cephalon Inc. Its customers are retail drug companies, supermarkets, wholesalers, chain drug stores, hospitals and hospital systems, mass merchandise chains, and group purchasing organizations. The company was founded in 1887 and is headquartered in Allegan, Michigan.

Perrigo is growing top and bottom lines in spite of an economy that won't let most others. First quarter earnings (fiscal year ends July 3) showed sales up 16% over the previous year's first period, and a most impressive 61% gain (66 cents vs 41 cents last year) in earnings per share. That was 32% above analysts' consensus estimate of 50 cents for the quarter. For the full year of 2009, results were $1.87, a nice improvement on 2008 at $1.58. For 2010, 12 analysts have a consensus forecast of $2.62, up 40%. Hard to find stocks delivering improved numbers. Probably why the stock is hitting new all-time highs.

Sales were $1.367 billion in 2006, then went to $1.447 billion, followed by $1.822 billion. 2009 finished with $2.007 billion. This year, anlalysts see $2.2 billion, and $2.32 billion in 2011.

Reasons for the current earnings success: higher sales, improved mix of sales with higher margined products doing better, and lower raw material costs. All contributed to wider margins in the first quarter while operating costs stayed the same. Of particular note was the Rx Pharmaceutical group: sales were up 42% while gross margin went from 33% to 47.5%. While this group made up only 9% of total sales, it was 16% of total profits.

Expect more sales growth. The company has 35 new products to release in 2010 with estimates of $120 million in additional sales from them. With a nasty flu season predicted, second quarter results should benefit from stronger sales of PRGO's remedies.

One trend that is definitely in the company's favor is the private label OTC products. That's when a Wal-Mart or Target offers similar OTC medicines in their own names alongside brand names. PRGO owns 70% of the private label market. In fiscal year 2009, Wal-Mart was 23% of PRGO's revenues. The company sells 1300 store-brand OTC products to over 900 customers.

More numbers: Market Cap is $3.84 billion. Trailing P/E is 23.47 but Forward P/E is 16. Book Value is $10.57. Price to book is 4. Operating margin for the last 12 months was 14.16% while Profit margin was 8.05%.
Total cash is $257 million or $2.82 a share. Total debt is $845 million. Debt is 46% of capital. Current ratio is 2.37. There are 91.33 million shares outstanding. Insiders own 7.88%, institutions 61.3%. There is a dividend of 25 cents a share annually for a yield of .6%.

Investors like Perrigo. It hit its all-time high of $42.20 on January 13. With solid earnings and sales growth, it's easy to see why investors own this stock. But it was only about a year ago that it was trading at $18.50, having joined the rest of the market in a downward swoon. That all seems to be forgotten now as the price marches ever higher. Whether it can keep going up will depend on more upside surprises to anlaysts' earnings estimates.

- Company Web site: www.perrigo.com

- Ted Allrich