Investing.com -- Swiss drugs and diagnostic maker, Roche (SIX:RO) is seeing mixed opinions from two big brokerages. BofA securities has upgraded Roche to a "buy," setting a target price of CHF 340, due to a positive outlook on the company's growth.
Meanwhile, Deutsche Bank (ETR:DBKGn) has downgraded the stock to "sell," with a target price of CHF 235, citing worries about Roche's R&D productivity and competitive standing.
BofA's upgrade to "buy" reflects a positive outlook on Roche's future. The brokerage believes that Roche's earnings per share (EPS) downgrade cycle, which saw a significant drop over the past three years, has now reached its nadir.
BofA projects a recovery in Roche’s EPS, forecasting an FY25 estimate that exceeds consensus by 3%. This expected rebound is due to a stronger-than-expected performance in key products like Xolair, used for asthma and hives, Vabysmo, targeting retinal diseases, and improving pharmaceutical margins.
Central to BofA's optimism is Roche’s pipeline, which includes three critical assets with the potential to each generate more than $5 billion in peak sales.
These assets include Giredestrant, an oral selective estrogen receptor degrader (SERD) for breast cancer, which BofA projects will achieve peak sales of CHF 7 billion (risk-adjusted to CHF 2.8 billion).
Fenebrutinib, a BTK inhibitor for multiple sclerosis, is expected to reach peak sales of CHF 5 billion (risk-adjusted to CHF 1.8 billion), while Prasinezumab, a potential first-in-class therapy for Parkinson’s disease, could see peak sales of CHF 5 billion (risk-adjusted to CHF 750 million).
Reflecting confidence in Roche’s ability to return to growth, BofA has set a price target of CHF 340, applying a 16x FY25E P/E ratio.
BofA is particularly enthusiastic about Giredestrant, despite concerns about past failures of similar drugs.
The brokerage expects positive outcomes from ongoing Phase III trials, differentiating Giredestrant from previous disappointments in this category.
On the other hand, Deutsche Bank's downgrade to 'sell' flags concerns about Roche’s direction and R&D productivity. The brokerage is wary of Roche’s diminishing innovation, especially in oncology, which has been a core area for the company
Deutsche Bank is skeptical about Roche's ability to maintain its competitive edge, potentially leading to weaker long-term growth.
Additionally, Deutsche Bank has raised red flags regarding Roche's late and undifferentiated entry into the obesity market.
Despite previous excitement about Roche’s obesity assets, recent data suggests these products may not offer differentiation from competitors.
This has led Deutsche Bank to reduce its target price from to CHF 235 CHF 265, applying a 13x FY24 P/E ratio.
The brokerage’s downgrade also reflects disappointment in Roche's obesity pipeline, which, despite initial promise, appears to lack the disruptive potential needed to compete effectively in this high-growth sector.
Deutsche Bank also voices concerns about Roche's oncology pipeline, particularly in immuno-oncology, an area that has previously driven significant growth.