Wednesday, April 24, 2019

Roche Showing Its Operating Strength Isn't Just A Fluke

With six straight quarters of revenue beats in the drug business (and a longer streak overall), I don't think you can call Roche's (OTCQX:RHHBY) operating performance a "fluke", though it is still fair to note that those beats are coming against lowered expectations that factor in greater biosimilar competition and weaker-than-once-expected sales for newer drugs like Tecentriq. Even so, drugs like Ocrevus and Hemlibra are doing well, and even former "disappointments" like Perjeta and Tecentriq are contributing more than expected, while the company continues to manage the biosimilar threat to its three largest drugs.

Roche still has a comparatively modest outlook for EPS growth over the next five years, and that does restrain valuation, but Roche has a deep pipeline with a lot of home run shots that don't factor significantly in most analysts' models. While the odds are slim that any one candidate will make it, collectively there could still be upside from the pipeline and the shares seem modestly undervalued below the mid-$30s.

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Roche Showing Its Operating Strength Isn't Just A Fluke

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