Perrigo Earnings: Weak Sales but Margin Recovery Well Underway With Strong Momentum

No-moat Perrigo reported mixed third-quarter earnings that were largely in line with our expectations. Total sales, which was up 2.1% year over year, was mainly driven by infant formula acquisition (purchased in November 2022) and strong international business with offsets from stock keeping unit, or SKU, prioritization. On the backdrop of challenging dynamics in the U.S. infant formula business, management lowered sales guidance to 4%-6% from a previously stated 7%-11%. However, we also saw margins showing great momentum and improving much faster than we had initially anticipated. After slightly lowering our sales forecast for the year and upping our margin assumptions, we maintain our fair value estimate of $40 per share.