(By Balaseshan) UBS Securities analyst Ami Fadia downgraded rating on shares of Perrigo Co. (NASDAQ:PRGO) to "Neutral" from "Buy" due to expensive valuation. The brokerage maintained its $120 price target on shares of the global healthcare supplier.
Fadia said Perrigo has had a nice run over the past few months as management continued to execute on the business and investors gravitated towards it given the defensive nature of the store brand industry.
The current price reflects a more than 21 times price-to-earnings multiple on 2013 consensus of $5.42 to which the analyst sees limited near-term upside. Separately, she is raising the 2013 tax rate from 29% to 30%, which net of other minor adjustments lowered her EPS estimate by $0.03.
The brokerage lowered its 2013 EPS estimate for Perrigo to $5.42 from $5.45, while maintaining its 2012 estimate of $4.95.
Fadia said Perrigo faces a $0.38 per share headwind in 2013 due to one extra week's benefit that its SAP system added to 2012 (down $0.10) and one-time tax credits in 2012 (down $0.28).
While the analyst looks for CHC sales to grow double digits from new launches in the second half of 2012 and potentially a better cough/cold season than last year, she does not expect to see any big new product launches that could drive upside to consensus.
Fadia thinks nutritionals should start to see some growth as management improves its positioning and pricing. And generics sales should remain strong with the help of Paddock's pipeline, but this is largely expected.
The analyst continues to view Perrigo as a strong defensive name with strong fundamentals and a dominant position in the store brand sector. While the company's medium/long-term growth still looks attractive to her, she is stepping to the sidelines at current levels.
PRGO is trading down 1.70% at $112.81 on Friday.