Why Is Allergan (AGN) Stock Falling Today?

Allergan AGN shares have fallen 5.8% on the day, while Shire plc SHPG is up 3.4% so far. These fluctuations come in light of a $50 billion dollar acquisition deal for Shire that is now taking a competitive turn.

Shire is a pharmaceutical company responsible for the manufacturing of ADHD medications such as Adderall. On Thursday Takeda Pharmaceutical Co. TKPYY, a Japanese company, saw its $60 billion cash and stock buyout offer rejected by Shire. The offer was priced at $66.16 a share, a 50% premium to Shire’s stock price from late March.

In conjunction with the third rejected offer from Takeda, Allergan, a company famous for making Botox, has announced it would consider producing an offer for the drug maker. Following the announcement, Allergen shares immediately began to drop, most likely due to investor concern that the company will overpay to overtake Shire.

In contrast, Shire share prices began to take off today. This comes as a result of increased investor confidence, facilitated by the mega-pharmaceutical fight for the company, and the hopes of a high buyout as a result.

Takeda, in order to bounce back from this rejection, needs to find a means of acquiring a much greater capacity of wealth if it wishes to purchase Shire, which currently holds a higher market valuation, and compete with Allergan.

Riding this wave of media spotlight has helped raise share prices 7.9% at peak trading on the day, and unlike Allergan and Takeda, Shire’s earnings outlook in the short term is seemingly positive, regardless of this deal.

Currently Shire holds a “B” grade for Growth, and a “B” grade for Value based in our Style Scores system.

Shire’s P/E of 10.7, P/B of 1.4, and P/S of 3.3 all come in at discounts to their respective industry averages and help show why the stock leaves investors with a strong value option. And if this buyout goes well, this could only be more of a discounted purchase, assuming the investor gets in now.

The company’s growth prospects look strong as well. A debt/equity ratio of 0.5 shows that Shire is financially sound, and a cash flow of $22.71 per share compared to the -$0.51 industry average helps show investors the financial stability of the company in an unstable industry.

This being said, Shire is expected to witness EPS growth of a modest 8.35% on an annualized basis over the next three to five years. Analyst estimate revisions point to a negative trend as well. Although all current quarter EPS estimates (3) in the past 60 days have been positive, current year EPS estimates within the same time range (6) are at a 100% agreement to the downside. This is why the pharmaceutical company currently holds a Zacks Rank #4 (Sell).

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