Analysts Downgrade Shire

Morningstar equity analysts are lowering Shire's fair value estimate to account for the impact of the acquisition of Baxalta. Through several acquisitions, Shire has transformed

Stefan Quenneville, CFA 15 February, 2016 | 10:16AM
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Following fourth-quarter results that were better than our expectations, Morningstar equity analysts are lowering Shire's (SHP) fair value estimate to $220 per ADR from $235 to account for the impact of the acquisition of Baxalta, which is expected to close by midyear.

We are maintaining our narrow moat, positive trend ratings as we view the deal as strategically attractive given the rare disease focus of both companies and potential tax synergies from Shire’s Irish tax domicile. However, given the full price paid for Baxalta and the midterm risks to the key hemophilia franchise from potential disruptive technologies from Roche and Alnylam, we remain cautious of the overall value creation for Shire.

Nevertheless, given the strong sell-off in Shire’s shares since the deal was proposed, in the context of the broader sector decline, we view the company as undervalued at current prices.

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Stefan Quenneville, CFA  is an equity analyst with Morningstar.