Shire rallies on Merrill, Citi notes

The bank pointed out that Shire shares have been weak since the third quarter results due to a 3% revenue miss on weakness in the legacy Baxalta franchises in their first full quarter in Shire.

“However, concern looks unwarranted given the miss was due to order phasing and FY16 guidance was actually tightened to the upper half of its $12.70-$13.10 range.”

Merrill said the share price has failed to fully regain the ground it lost after proposing its acquisition of Baxalta in August last year. It noted the stock is trading at just 9x its 2018 price-to-earnings ratio despite forecast 10% earnings per share compound annual growth rate between 2018 and 2021.

The bank also argued that risks are now priced into the stock. “Although markets worry about new competition to the acquired hemophilia franchise from Roche’s competitor ACE-910, and a potential $10bn tax liability from the Baxalta deal, we believe these are more than priced in.”

In addition, Merrill said hemophilia sales may be more robust than the market fears and that the acquired immunology business is largely being ignored.

Citigroup was also pushing the stock on Thursday ahead of the company’s capital markets day, saying the risk/reward is compelling.

Citi said the share price was discounting an overly bearish outlook for hematology.

Traders also said Shire was benefiting from a negative note by Bernstein on Roche’s haemophilia drug, ACE-910, which is the major competitor to 20% of Shire’s business.

At 0950 BST, Shire shares were up 3.7% to 4,593.50p.