This Under-the-Radar Healthcare Stock Yields Nearly 8.5%. Here's Whether That Income Is Too Good to Be True.
Perrigo makes private-label over-the-counter drugs, which sounds like a reliable business, but there are warning signs to consider before you buy it.
Perrigo (NYSE: PRGO) operates in the healthcare sector, offering a yield of nearly 8.5%. However, the company's recent performance has been weak, and its CEO has abruptly resigned, leaving a temporary CEO in place. The yield, while attractive, comes with certain risks that investors should consider before jumping in, thinking they have found a great income opportunity.
Perrigo primarily produces over-the-counter drugs and owns some of its own brands. However, the main aspect of the business is the production of private-label generic drugs. For instance, consumers may choose the generic version of Procter & Gamble's (NYSE: PG) NyQuil, available at their local store, rather than paying full price for the brand-name product. This store does not own a generic drug factory; instead, it purchases generics from third-party manufacturers, such as Perrigo.
In theory, Perrigo's business model should be consistent, given the nature of consumer staples. However, the company's recent poor performance and the sudden departure of its CEO suggest that potential investors should proceed with caution.
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