For Shire, more margin pressure plus fewer growth sparks make for underwhelming 2018

“There is cheap and then there is Shire cheap," Bernstein analyst Ronny Gal wrote Monday of Shire shares. (Image: Shire)

One analyst takeaway from Shire’s 2018 outlook: Consensus earnings estimates probably need to come down.

On Wednesday, the company said it was predicting $14.90 to $15.50 per share, a range that sits below the $15.94 Wall Street had been expecting. And that “initial 2018 outlook suggests EPS needs trimming,” Jefferies’ Peter Welford wrote in a note to clients.

The reasons Shire anticipates a potential earnings-growth slowdown? Costs related to the startup of a new manufacturing site, increased generic competition and lower royalties, CEO Flemming Ornskov said in a statement.

Analysts’ revenue estimates, on the other hand, matched up better with Shire’s projections of between $14.9 billion and $15.3 billion in sales for the year, though just barely. They anticipate Shire just making it into that range, with $14.9 billion for the year.

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In some ways, the consensus-versus-guidance discrepancy mirrors what happened for Shire in Q4, Welford pointed out. Product sales of $3.91 billion came in 3% above consensus, thanks to strong performances from Shire’s immunoglobulin portfolio and rare-disease med Firazyr that offset weaker-than-expected turnouts for inhibitors and ADHD heavyweight Vyvanse.

Meanwhile, though, Shire’s produced a “weaker” gross margin than analysts expected, Welford noted.

Right now, analysts don’t see a ton to feel excited about when it comes to Shire, which in recent years has been somewhat of an M&A machine. Its last major deal, a $32 Baxalta buyout, helped it beef up in rare diseases, though the hemophilia portfolio and pipeline it brought along significantly lags competitors’ in some key ways.

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And while the company did in January make moves to set itself up for a neuroscience sale or spinoff, “near-term catalysts are scarce,” Bernstein’s Ronny Gal wrote in his own note to clients, noting that he didn’t forsee much happening in Shire’s pipeline this year “to change sentiment.”

That said, he upgraded the stock Wednesday, telling investors that “the time has come to catch the falling knife.”

“There is cheap and then there is Shire cheap,” he wrote of the stock, adding that “we now see the stock as cheap enough that we can recommend the stock on expectation of limited downside and sufficient upside to justify 'sitting' on the stock even if it takes some time to turn.”