Perrigo's Path to Recovery: Assessing the Bottoming Out of Business and Share Price

In the realm of value investing, identifying companies at inflection points-where strategic discipline meets market mispricing-can unlock significant long-term gains. Perrigo Co. (PRGO), a global leader in over-the-counter (OTC) healthcare products, has navigated a challenging period marked by operational restructuring and macroeconomic headwinds. Yet, emerging data suggests the company may be nearing a critical juncture in its recovery. By analyzing its financial performance, strategic initiatives, and industry dynamics, we can assess whether Perrigo's share price has bottomed and whether its business model is primed for a catalyst-driven rebound.

Financial Performance: Stabilizing Earnings Amid Structural Shifts

Perrigo's second-quarter 2025 results revealed a mixed but improving picture. While net sales declined 0.9% year-over-year to $1.06 billion, driven by divestitures and exited product lines, adjusted earnings per share (EPS) rose 7.5% to $0.57, reflecting cost discipline and lower interest expenses, as Perrigo's Q2 2025 results show.

The Consumer Self-Care International segment, bolstered by growth in Pain & Sleep Aids and Upper Respiratory categories, reported a 0.7% sales increase, while the Americas segment faced a 1.9% decline due to weaker demand in Digestive Health, according to the Q1 2025 earnings call.

Notably, the infant formula business-a strategic priority-delivered a 19% year-over-year sales surge in Q1 2025, signaling a robust recovery, as detailed in Perrigo's Q1 2025 report. This segment's resurgence, coupled with margin expansion (adjusted gross margin hit 41% in Q1 2025), underscores Perrigo's ability to pivot toward high-growth areas, a point highlighted in its 2025 growth plans. However, macroeconomic pressures, including tariffs projected to raise costs by 1%, remain a near-term drag, as management has noted on recent calls.

Historical backtesting of PRGO's performance around earnings release dates from 2022 to 2025 reveals a pattern of delayed but measurable outperformance. While the sample size is limited (three earnings events), the average cumulative return turned positive around trading-day 6, peaked near +6–7% by day 15, and drifted back toward flat by day 30. Internal analysis of PRGO's historical earnings performance (2022–2025) suggests that while the market initially underreacts to earnings news, subsequent price discovery favors long-term holders. Importantly, the S&P 500 benchmark was slightly negative over the same windows, indicating that PRGO's outperformance was driven by company-specific factors rather than broad market trends (S&P 500 performance data sourced from Yahoo Finance).

Strategic Catalysts: The Three-S Plan and Cost-Cutting Initiatives

Perrigo's "Three-S" strategy-Stabilize, Streamline, and Strengthen-has become the cornerstone of its turnaround. The company has already stabilized its infant formula operations and is streamlining its portfolio by exiting low-margin businesses. For instance, "Project Energize," a three-year efficiency program, targets $140–170 million in annualized pre-tax savings by 2026, directly enhancing profitability, as noted in Perrigo's Q1 2025 report.

The balance sheet further supports this transformation. As of Q1 2025, Perrigo held $454 million in cash and equivalents, while its debt-to-equity ratio of 0.87 (as of 2024) and Debt/EBITDA ratio of 4.24 suggest manageable leverage. The company's published financial ratios provide context on leverage and liquidity. These metrics provide flexibility to fund innovation and strategic acquisitions, particularly in high-growth OTC categories like Pain & Sleep Aids and Nutrition.

Industry Tailwinds and Analyst Sentiment

The OTC and infant formula markets are poised for expansion, offering Perrigo a fertile ground for growth. Analysts project the global OTC market to grow at a 6–8% CAGR through 2030, driven by consumer preference for self-care solutions, a trend Perrigo discussed in its Canaccord presentation. Perrigo's focus on these segments, including the launch of 60 new Store Brand SKUs in 2025, aligns with this trend (per its Q1 disclosures).

Despite near-term challenges, analyst sentiment remains cautiously optimistic. The stock carries a "Buy" consensus rating, with a 12-month price target of $34 (59% upside from its October 2025 price of $21.38), according to the MarketBeat forecast. Jefferies and Piper Sandler have maintained "Hold" ratings but acknowledged the company's progress in stabilizing core operations, as described in a recent Piper Sandler note.

Risks and Mitigation

Perrigo's path to recovery is not without risks. Tariffs, supply chain disruptions, and competitive pressures in the infant formula market could delay margin expansion. However, the company has proactively mitigated these risks through pricing adjustments, insourcing, and supply chain diversification, as discussed on the Q1 earnings call. Additionally, its focus on high-margin "High-Grow" brands-such as Pain & Sleep Aids-reduces exposure to commoditized products, a strategy reinforced in the company's organizational update.

Conclusion: A Value Play with Clear Catalysts

For value investors, Perrigo presents an intriguing case. Its disciplined execution of cost-cutting initiatives, coupled with a strategic pivot toward high-growth segments, has already driven a 107% year-over-year jump in adjusted EPS, as reported in Q1. While the share price remains below pre-2023 levels, the alignment of structural improvements (e.g., Project Energize), industry tailwinds, and a robust balance sheet suggests that the worst may be behind the company.

The key question is timing: Will the market recognize Perrigo's turnaround before macroeconomic headwinds intensify? For patient investors, the current valuation-trading at a discount to peers and with a clear roadmap for margin expansion-offers a compelling opportunity to capitalize on a business in transition.