JP Morgan reiterates overweight on Shire

Shire's $6.5bn (£4.36bn) acquistion of Dyax would result in some initial dilution but that would be more than made up for by the boost to earnings that it would deliver in following years, one of the world's largest brokers said.

The stock was also undervalued relative to peers, even if there was some uncertainty surrounding the risk of further M&A, JP Morgan believed.

Dyax's DX-2930 treatment for Hereditary Angioedema (HAE) could reach peak sales of about $2.0bn, the analysts said.

That would drive high-single-digit core earnings per share upgrades by 2020 and double-digit ones after 2021, albeit with initial dilution in 2016/17, analyst James D.Gordon said in a reserach note sent to clients.

Hence, core EPS was now seen achieving a compound annual growth rate between 2016 and 2020 of 14%, instead of 11%, three percentage points more than the firm's mid-cap peers.

That was not reflected in the price-to-earnings multiples for Shire, Gordon explained.

Indeed, its shares were changing hands at a discount to peers of 15% and 19% for 2016 and 2017, respectively.

As regarded M&A risk, "we believe Shire are unlikely to complete a large equity funded transaction at current share-price levels," he said.

The analyst therefore opted to reiterate his 'overweight' stance on the shares and to bump up his target price to 6,600p from 6,100p.