Perrigo Faces Securities Fraud Lawsuit Amid Fragile Turnaround and High Financial Risks

What happened

A shareholder has filed a securities class action lawsuit against Perrigo Company plc, covering the period from February 27, 2023, to November 4, 2025, alleging potential misrepresentations or omissions. This legal action emerges as Perrigo trades at distressed multiples, with a stock price around $13.23 reflecting a 45-50% discount to its intrinsic value of approximately $24 per share, despite positive free cash flow. The company is in the midst of executing ambitious cost-reduction programs like Supply Chain Reinvention and Project Energize, aiming to save over $300 million annually to support margins and deleveraging. However, Perrigo already contends with severe leverage at 7.07x net debt/EBITDA, thin interest coverage of 1.72x, and an unresolved €1.64 billion Irish tax dispute, which compound execution risks. The lawsuit adds legal uncertainty and potential management distraction, threatening to further delay progress in stabilizing its self-care business and eroding investor sentiment during a critical transition phase.

Implication

First, the lawsuit may result in substantial legal costs or settlements, straining Perrigo's highly leveraged balance sheet and limiting financial flexibility for debt reduction or growth initiatives. Second, management focus could be diverted from critical execution of cost-saving programs like Project Energize, risking delays in achieving margin targets and operational stability. Third, fraud allegations may further damage investor confidence, exacerbating stock price volatility and hindering any potential re-rating based on underlying value. Fourth, increased regulatory and public scrutiny could complicate ongoing business operations, including strategic reviews of infant formula and oral care segments. Finally, this development underscores the need for investors to closely monitor both legal proceedings and financial metrics, as adverse outcomes could significantly impair the company's recovery prospects.

Thesis delta

The DeepValue report's 'POTENTIAL BUY' thesis was cautiously optimistic, relying on Perrigo's distressed valuation and cost-saving potential despite high leverage and legacy risks. The securities fraud lawsuit introduces an additional material risk, potentially skewing the risk-reward balance negatively by adding legal uncertainty and potential financial liabilities. Investors should downgrade their stance or maintain only small, risk-adjusted positions until clarity emerges on the lawsuit's impact and the company's ability to navigate this new challenge while executing its turnaround.