Securities Fraud Lawsuit Compounds Perrigo's High-Risk Profile Amid Turnaround Efforts

What happened

A shareholder has filed a securities class action lawsuit against Perrigo, alleging fraud between February 2023 and November 2025. This period overlaps with Perrigo's aggressive restructuring under Project Energize and Supply Chain Reinvention, aimed at cost savings while grappling with high leverage and thin interest coverage. The DeepValue report notes Perrigo's distressed valuation and potential upside from a DCF model, but flags execution risks and unresolved legal issues like the Irish tax dispute. The lawsuit introduces fresh legal uncertainty, likely increasing costs and diverting management focus from critical operational improvements. Investors must now factor in heightened legal overhangs alongside existing financial vulnerabilities, making the stock even more speculative.

Implication

Investors should anticipate greater stock volatility and legal costs that could strain Perrigo's already tight cash flow, impacting deleveraging efforts. Management attention may be diverted from executing key cost-saving initiatives like Project Energize, risking delays in margin targets. The lawsuit could prolong resolution of other legacy risks, such as the Irish tax dispute, adding to balance sheet pressures. Market sentiment may further deteriorate, amplifying skepticism about Perrigo's ability to convert positive free cash flow into sustainable earnings. Ultimately, this necessitates closer monitoring of both quarterly execution and legal developments, raising the bar for any investment thesis.

Thesis delta

The DeepValue report's 'POTENTIAL BUY' thesis relied on successful execution of restructuring and resolution of legacy risks, with caution due to high leverage. The securities fraud lawsuit now intensifies the legal overhang, increasing the likelihood of management distraction and financial strain. This shifts the risk-reward balance further towards the downside, warranting a more defensive stance unless clear operational progress and legal clarity emerge.