Our price estimate for Roche Holding’s ADR is $48, which is at a premium of around 10% to the current market price. Our price estimate is based on expected 2020 earnings of $2.61 on an adjusted basis, and a price to earnings multiple of 18.5x. Roche’s ADR has seen over 50% growth over the last 3 years or so, as the company posted steady revenue and earnings growth, primarily led by its oncology drugs portfolio.

Roche is a biopharmaceutical company that discovers, develops, and sells pharmaceutical products globally. Its customers include chain stores (Walgreens, CVS, Rite-Aid, Wal-Mart), clinics, long-term care facilities, HMO, federal facilities, non-federal institutions, and mail order pharmacies. It competes with other pharmaceutical companies, including Johnson & Johnson, Pfizer, AbbVie, and Merck. In this note we focus on estimating Roche’s ADR price. You can look at our interactive dashboard analysis on Roche’s valuation for more details.

#1. Estimating Roche’s Total Revenues:

  • Total revenues have increased from $53.2 billion in 2016 to $64.4 billion in 2019, and they could grow 3% to $66.5 billion in 2020.
  • Our interactive dashboard analysis, How Does Roche Make Money?, provides an in depth view of the company’s revenues.

#1.1 We compare trends in Roche’s total revenues with that of its peers in Roche’s valuation dashboard.

#2. Deriving Roche’s Adjusted Net Income:

  • Adjusted Net Income grew from $12.6 billion in 2016 to $17.6 Billion in 2019, and we expect it to be around $18.0 billion in 2020.
  • This growth will likely be led by higher revenues, partly offset by a modest decline in net income margin, as the company might have to take price cuts for some of its drugs, which will face biosimilars competition in 2020.
  • The jump In Adjusted Net Income Margin since 2018 can be attributed to the impact of the U.S. Tax Act.

#3. Determining Roche’s Adjusted EPS:

  • Adjusted EPS has grown from $1.84 in 2016 to $2.54 in 2019, and we estimate it to be $2.61 in 2020.
  • EPS growth from 2018 can be attributed to higher Adjusted Net Income.

#4. Estimating Roche’s ADR Price:

  • Our price estimate of $48 for Roche’s ADR is based on our Detailed Valuation Model, and implies an 18.5x P/E Multiple on expected 2020 Adjusted EPS of $2.61.

#4.1 Comparing Roche’s Historical P/E Multiple With That of Its Peers

  • P/E Multiples are based on Share Price at the end of year, and reported adjusted EPS for the full year.
  • Roche’s P/E Multiple has been higher than that of Pfizer but lower than that of Johnson & Johnson and Merck.

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