This Firm Just Upgraded Shire On Attractive Valuation And Double-Digit EPS Growth

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  • Shire PLC (ADR) SHPG shares plunged 9 percent on January 11.
  • Credit Suisse’s Rebekah Harper upgraded the rating for the company from Neutral to Outperform, while reducing the price target from £54 to £50.
  • The upgrade follows the recent pullback on the shares, after news of the deal with Baxalta Inc BXLT, Harper stated.

Shire’s shares plummeted 10 percent following the company’s proposed merger with Baxalta. Analyst Rebekah Harper believes that the deal provides “a solid strategic fit,” while also mitigating “the significant generic risk” that Shire faces at the end of this decade.

The deal has been approved by the Boards of both companies and has received the support of Baxalta's largest shareholder, Baxter International Inc BAX. Under the agreement, Baxalta shareholders will receive $18 in cash and 0.1482 Shire ADS for every Baxalta share. Based on Shire's pre-deal closing price on January 8, the deal implies $45.57 per Baxalta share. Baxalta shareholders will own about 34 percent of the combined entity.

The deal is expected to close in mid-2016. “On a commercial basis, both organisations are similar-sized and we see this as a clear target for cost savings and revenue synergies,” Harper wrote.

Shire is targeting annual operating cost synergies of over $500m, which it expects to achieve within the first three years after the closing of the deal. Harper expects NewCo to deliver a sales CAGR of 11.5 percent and an EPS CAGR of 13.7 percent to 2019.

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Posted In: Analyst ColorLong IdeasUpgradesPrice TargetAnalyst RatingsTrading IdeasCredit SuisseRebekah Harper
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