$7.50
$25.00
bear $7.50
base $13.50
bull $25.00
margin of safety $7.00
market price* $16.63
Business condition attached to the margin of safety
The $422 million Term A loan due April 2027 is refinanced without a material rise in interest cost, and the February 2026 FDA inspection findings at the Wisconsin infant formula plant are closed without escalation.
Perrigo is the largest maker of store-brand (private-label) over-the-counter health products sold under retailers' own names, plus branded consumer health lines in Europe. Of 2025 sales of $4.25 billion, $2.54 billion came from the United States and $1.62 billion from Europe. Main categories are upper respiratory (cough, cold, allergy), digestive health (antacids, heartburn, laxatives), pain and sleep aids, skin care, oral care and infant formula. What we measure. We value the business on owner earnings: operating cash flow, with the swings from receivables, inventory, payables and accrued liabilities taken out, less stock compensation and the portion of capital spending needed to stay in business. On that basis Perrigo earned about $2.21 per share in 2023, $1.86 in 2024 and $1.38 in 2025, three declines in a row. The 2025 net loss of $1.4 billion is almost entirely non-cash goodwill write-downs of $1.3 billion, which we add back as sunk acquisition cost. It still matters as a signal, because management wrote down goodwill on lower expected cash flows from infant formula and a weaker outlook for the wider self-care market. We anchor on $1.40 per share, essentially the latest year. Earlier years, including $3.4 to $4.7 per share in 2017-2020, describe a larger business that still included the prescription generics unit sold in 2021, so they are not used. The 2021-2025 median would be $1.80, but we did not use it because earnings have fallen three straight years and sales fell again in the first half of 2026 ($1.99 billion versus $2.10 billion, down about 5%). An accounting judgement that matters. Perrigo's cash flow shows a cash drain from working capital nearly every year ($101 million in 2025, $75 million in 2024, $59 million in 2023), largely payroll and restructuring payments. Because our method removes working-capital swings, this drain does not reduce owner earnings, which flatters the result. We handle this in the bear case rather than adjust the anchor: the company has announced a two-year operational program with $80 to $90 million of cash costs. The debt. Perrigo owes about $3.64 billion. A $422 million term loan matures in April 2027 and $972 million in April 2029. Interest is already deducted in the cash flow we start from, so we do not subtract debt again. Debt shapes the cases: Moody's downgraded the company in late 2025, lifting the coupon on its 2030 notes from 4.90% to 5.15% from mid-2026. Base case: about $13.50 per share. Sales have fallen from $4.66 billion (2023) to $4.25 billion (2025). Infant formula sales dropped from $563 million to $409 million over 2023-2025 as imports, a lost Good Start distribution position and plant remediation cut share, and digestive health fell 11% in 2025. We assume owner earnings drift down about 3% a year for ten years, and 6% a year afterward. We credit no growth. Two prior cost-saving programs (about $157 million and $167 million of annualized savings, both completed) have not stopped the decline in owner earnings, so we do not count the newly announced $80-100 million of savings, and we give no credit for the strategic review of infant formula. What we do credit is that the store-brand franchise, with major retailers as customers, has endured for decades and the company reports store-brand volume share gains, so earnings shrink rather than disappear. Bear case: about $7.50 per share. The company spends roughly $0.60 per share of cash on restructuring in each of the next two years, earnings then fall about 10% a year for five years and 8% afterward. Named pressures: continued soft OTC consumption, a February 2026 FDA inspection notice at the Wisconsin infant formula plant, higher refinancing costs on the 2027 and 2029 loans, and the talcum powder lawsuits (about 290 cases), which we do not quantify. Bull case: about $25 per share. The announced cost program lands on time and lifts owner earnings to about $1.90 per share, then holds flat for three years and declines only 1.5% a year. The cost savings are drawn from the company's own targets and its record of delivering prior programs' savings, but earnings did not rise with those savings, so this is an upside case, not our expectation. What would make this wrong. If the $150 million-plus of completed savings begins showing up in cash flow, or the infant formula review ends with a sale that removes a loss-making business, the base case is too low. Further sales declines beyond the 5% seen in the first half of 2026, or a costly refinancing, would make the bear case more likely. Changes since a prior view: none, this is our first analysis of the company. We could not verify why working capital consumes cash so consistently beyond payroll and restructuring payments; a portion could be permanent rather than timing. The margin-of-safety price of $7.00 is roughly half of the base case and about the bear case, reflecting declining earnings, heavy debt and litigation, and is conditional on the refinancing and FDA outcomes above.