Perrigo Q2 Beat Lifts Stock 23%; Infant Formula Recovery Offsets Headwinds

What happened

Perrigo's second-quarter 2026 earnings and revenue exceeded analyst estimates, sending shares up 23%, as a rebound in infant formula sales helped counterbalance softness in other over-the-counter categories and the impact of recent divestitures. The company reiterated its full-year 2026 guidance, signaling that management's cost-saving programs and portfolio reshaping are beginning to deliver the stabilization promised under the 'Three-S' plan. This print provides a tangible data point that the largest U.S. store-brand OTC manufacturer can convert its scale into improving operating momentum, a key question from our prior report. However, the rally still leaves the stock at a deep discount to our DCF-derived intrinsic value of ~$24 per share, reflecting persistent skepticism about high leverage, thin interest coverage, and the unresolved €1.64 billion Irish tax dispute. The reaffirmed outlook reduces near-term earnings risk but does not address the balance-sheet fragility that remains the primary hurdle for a sustained re-rating.

Implication

The Q2 beat, driven by infant formula, validates that Perrigo's operational fixes are gaining traction and that cost savings from Project Energize and Supply Chain Reinvention are flowing through to margins. The reaffirmed 2026 guidance suggests management has line of sight to meet or exceed its adjusted EPS target, which could eventually drive deleveraging if free cash flow remains positive. Yet, the 23% surge still prices the stock at a significant discount to our sum-of-the-parts, reflecting the market's unwillingness to underwrite the equity until net debt/EBITDA meaningfully declines and the Irish tax overhang is resolved. Investors should view the quarter as an encouraging signal but not a definitive all-clear; further evidence of sustained formula recovery, margin expansion, and debt reduction is needed to warrant a stronger bullish stance. Prudent positioning would size for the possibility that the turnaround stalls amid soft consumer demand or that adverse legal developments resurface.

Thesis delta

The thesis edges more constructive as the Q2 beat and reaffirmed guidance de-risk the near-term earnings outlook and suggest execution is on track. However, the high leverage and unresolved tax dispute remain critical vulnerabilities that prevent a full upgrade to BUY. The stock's deep discount persists, but the margin of safety has improved marginally.