Perrigo Reports Strong Quarter, but Outlook Muddied by Various Pandemic Implications

Perrigo reported strong second-quarter results, but discussions of emerging trends continue to muddy the outlook. We are maintaining our fair value estimate and no-moat rating, as the firm operates in a fiercely competitive commodity market. The pandemic-driven spike in consumer demand in April carried into May, and levels were likely sustained in June as clients replenished their threadbare shelves and international sales picked up at the end of the quarter. As business volumes return to normal, we anticipate operational challenges in managing the deleveraging of elevated operating expenses required to operate during the pandemic, such as employee bonuses, cleaning supplies, and safety procedures. We believe this concern caused management to defer updating guidance despite the stronger year-to-date results. Although, Perrigo has established relationships, a leading footprint and consumer expertise, we do not believe the company has significant differentiation to compete effectively in a fiercely competitive consumer commodity market.