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Perrigo Stock Skyrockets Due to Takeover Talks

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Perrigo stock skyrockets

On June 14, 2016, Perrigo (PRGO) was the top performer within the Health Care Select Sector SPDR ETF (XLV). It gained 9.2% and outperformed the SPDR S&P 500 ETF (SPY). SPY fell by 0.2%. Nearly 8.4 million of Perrigo shares were traded—compared to the three-month average trading volume of ~2.7 million shares per day.

Perrigo went up based on a report that it’s close to an agreement to be taken over by a United Kingdom company for $20 billion. Perrigo closed at $108.13 and traded above the 20-day moving average price of $96.10. It’s important to note that ~4.6% of Perrigo’s total equity float is in a short position. However, the stock has fallen by 25.3% on a year-to-date basis. Perrigo has a relative strength index of 50. This indicates that the stock isn’t overbought or oversold. As of the closing price on June 14, the stock was trading at a 2016 forward price-to-earnings multiple of ~13.1. Perrigo has a book value of $68.77 per share. At its current price, the stock is trading at a price-to-book value of ~1.60x. Some of its other peers such as Pfizer (PFE), Bristol-Myers Squibb (BMY), and Eli Lilly (LLY) are trading at a price-to-book value of ~3.4x, 8.4x, and 5.50x, respectively. Perrigo is trading at a discount compared to its peers.

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Analysts’ expectations and recommendations

Analysts’ consensus estimate for Perrigo’s 12-month target price is $117.20—a potential return of ~8.3% from its current price. Seven or 33.3% of analysts recommended the stock as a “buy,” 12 or 57.1% of analysts recommended the as a “hold,” and two or 9.5% of analysts recommended the stock as a “sell.” Perrigo carries a weight of ~0.5% in XLV’s portfolio.

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