Consumer Demand Not Letting Up for Perrigo, but Potential Production Continuity Risks Loom

Perrigo reported normalized EPS of $1.14, in line with the low end of management's update earlier this month, and we are maintaining our $40 fair value estimate and no-moat rating. As expected, the COVID-19 pandemic drove consumer demand for over-the-counter and prescription products, which spiked in March and remained strong through April. Perrigo is prioritizing production of high-demand items, but staffing shortages caused by the pandemic have pressured production and the company is operating at 80% capacity. Although retail demand remains strong as shelves get restocked, management is hesitant to update full-year guidance to reflect the notably stronger first quarter. Prior guidance called for net sales growth of 6% to 7% and non-GAAP EPS of $3.95 to $4.15. Despite management’s caution, we continue to believe Perrigo and generics in general are well positioned to withstand the pandemic and potential economic softness with Perrigo's ability to offer products with attractive price alternatives leveraging scale.