Shire Down 6% Since Brexit, Goldman Sachs Still Bullish

Goldman Sachs’ Keyur Parekh believes the current stock valuation of Shire PLC (ADR) SHPG is very attractive relative to the company’s growth profile and outlook for cash generation.

Parekh re-initiated coverage of the company with a CL-Buy rating and price target of 6300p.

Underappreciated Potential

The analyst believes the current consensus expectations and stock valuation meaningfully underestimate the potential synergies from the Baxalta Inc BXLT acquisition, the elongation of the GI and ADHD franchises from recent pipeline updates and in-licensing, the commercial opportunity for lifitegrast and the company’s mid-stage pipeline opportunities.

“Our analysis of Baxalta’s cost structure and Shire’s ability to successfully integrate acquisitions gives us confidence that Shire will be able to generate meaningfully higher synergies than current guidance; we see Shire reducing c.$1 billion in costs through to 2020E,” Parekh mentioned.

In addition, given the clinical profile and market dynamics for lifitegrast in dry eye disease, the analyst expects sales of $900 million in 2020, ahead of the consensus expectations.

Related Link: Bernstein Lists Active Buyers Of Ophthalmology Companies

Concerns Overdone

“Longer term, we see concerns around competitive pressures to the haemophilia business as over-done, driven by our view of the likely Phase III trial design; we believe that even if the impact here were worse than our expectation, Shire’s ability to adjust its cost base remains overlooked,” Parekh stated.

The analyst believes that Shire’s cash flow generation and speed of deleveraging continue to be underappreciated.

At time of writing, Shire was up 2.84 percent in Tuesday's pre-market session, trading at $169.32 about 15 minutes prior to the opening bell.