Perrigo (PRGO) Portfolio Pickup Seen as Modestly Accretive to FY16 Outlook - Leerink

Leerink affirms Perrigo (NYSE: PRGO) at Market Perform with a price target of $171 following an announcement Tuesday morning that Perrigo would acquire a divested Glaxo (NYSE: GSK)/Novartis (NYSE: NVS) portfolio of over-the-counter (OTC) products which includes EU brands within cold/flu, nicotine replacement and cold sore treatments.

Analyst Jason M. Gerberry noted that management said little on the company's conference call Tuesday. The analyst continued, We assume in our accretion/dilution (A/D) analysis an acquisition cost of ~$300m implying a ~3x sales multiple, similar to the deal multiple PRGO paid for Omega. In our A/D analysis we assume: (1) growth -- mgmt expects the brands to grow between 5-10%, in-line with the overall consumer healthcare (CHC) business. Our analysis assumes the mid-point of ~7.5% Y/Y growth in 2016; (2) gross margins -- we assume ~55% gross margins as mgmt expects the acquired products to be accretive to both gross margins and operating margins. We assume very modest incremental Opex (~$15m) given the significant commercial infrastructure PRGO acquired via the Omega transaction; (3) financing & tax -- all cash transaction. We assume the deal is financed using ~100% debt at a conservative ~5% interest rate. On tax assumptions, mgmt believes the company's corporate blended tax rate should be applied to this portfolio absent further guidance.

Perrigo management also didn't address Mylan's (Nasdaq: MYL) move to acquire the company.

For an analyst ratings summary and ratings history on Perrigo Co. click here. For more ratings news on Perrigo Co. click here.

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