Roche Holding AG ROG

Roche Earnings: Shares Undervalued as We See Firm Turning a Corner on Growth and Productivity

We don’t expect to make any changes to our CHF 379/$55 fair value estimate for Roche following the company's first-quarter results. Roche’s pharmaceutical and diagnostics divisions each grew at a 2% rate at constant currency, with 7% underlying constant-currency growth after removing the headwind from reduced covid-related antibody and diagnostic sales. Management maintained its guidance for mid-single-digit constant-currency sales growth and core earnings per share growth for the full year. We expect covid and foreign-exchange headwinds to subside for the remainder of the year, allowing Roche’s underlying growth to become more apparent to investors. While this is not a year for significant new launches, we expect significant pipeline data amid a pipeline reshuffling that prioritizes higher-impact programs in immunology (Roivant’s TL1A) and obesity (Carmot’s CT-388). Beyond 2024, we think Roche is capable of mid- or even high-single-digit annual growth (and core operating margins remaining in the mid-30s), with higher growth possible if these in-licensed programs—or in-house programs like Alzheimer’s drug candidate trontinemab or oncology drug candidate tiragolumab—reach the market. We think Roche’s pharmaceutical innovation and diagnostics dominance support a wide moat.