Class Action Lawsuit Over Infant Formula Intensifies Perrigo's Legal and Turnaround Risks

What happened

Robbins LLP has announced a class action lawsuit alleging Perrigo misled investors about the value of its infant formula from February 2024 to November 2025, adding a new legal front to the company's challenges. This comes as Perrigo, an OTC self-care firm, is already executing a high-stakes turnaround with distressed valuations, high leverage, and ongoing cost-saving programs like Project Energize, per the DeepValue report. The report notes the stock trades at a ~45-50% discount to intrinsic value based on FCF, but flags significant risks including an unresolved €1.64bn Irish tax dispute and sensitivity to execution in segments like infant formula. The lawsuit directly targets a business area under regulatory scrutiny and soft demand, potentially eroding investor confidence and complicating management's focus on deleveraging and margin improvements. Overall, this development amplifies the legal overhangs that have contributed to the stock's 52% decline over the past year, making the path to re-rating even more precarious.

Implication

Investors must now factor in potential financial penalties, legal costs, and management distraction from the lawsuit, which could delay critical initiatives like cost savings and debt reduction. The allegations specifically on infant formula may trigger additional regulatory scrutiny and weaken Perrigo's positioning in a key category, exacerbating existing sales softness and competitive pressures. From a valuation standpoint, this news reinforces the market's deep discounting of Perrigo's equity, as reflected in its low EV/EBITDA of ~3.3x, and may further depress multiples until the legal outcome is clearer. For those considering the stock as a potential buy, the lawsuit adds a tangible near-term risk that wasn't fully priced in, necessitating more conservative assumptions about cash flow and balance sheet health. Monitoring the lawsuit's progression and any settlements will be essential, as adverse developments could undermine the thesis that cost programs and FCF generation can offset high leverage and legacy issues.

Thesis delta

The DeepValue report's 'POTENTIAL BUY' thesis already highlighted legal risks like the Irish tax dispute, but this class action introduces a new, immediate litigation threat focused on infant formula, a core business segment. This shifts the risk-reward balance slightly more negative, emphasizing that investors must now account for potential settlements and prolonged legal battles that could strain resources. While the turnaround narrative based on cost savings and FCF remains plausible, execution credibility is under increased pressure, and the thesis should be adjusted to include heightened caution until this lawsuit is resolved.