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Shire Shares Overvalued After Rally

Morningstar Equity Research implies the market is overvaluing the pharma stock relative to its fair value

Holly Cook 29 November, 2011 | 12:46PM

Biopharmaceutical firm Shire (SHP) has enjoyed a strong rally in recent trading sessions, bolstered in part by full-year results published at the start of the month. But with the stock currently trading above 2,030p per share (as at November 29), the Morningstar Rating for Stocks implies Shire is now an expensive prospect for investors looking to get into the stock. The star rating that Morningstar applies to stocks under coverage is both quantitative and qualitative, and is designed to be forward-looking. If a stock has a high star rating, that means we think the shares have good upside potential and that prospective investors might want to keep them on their radar. Shire currently trades in excess of 35% above Morningstar's long-term fair value estimate and as such is carrying a two-star rating at present.

Karen Andersen, the Morningstar analyst covering Shire, believes that the company's growing portfolio will provide strong top-line growth during the next few years. However, Andersen also think that future generic competition in the ADHD market and the closing window to capitalise on Genzyme's drug shortages prevents a more aggressive stance on the firm's prospects.

Read Andersen's recently-updated research report and fair value estimate for Shire--and check its Star Rating, which is updated daily according to the closing share price--here.

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Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Shire PLC2,900.00 GBX1.61
About Author Holly Cook

Holly Cook  is Managing Editor of Morningstar.co.uk