Analyst Note| Karen Andersen, CFA |
We're slightly raising our Roche fair value estimate to CHF 460/$63 after making several small changes to our valuation model. First, we've added advancing pipeline programs beyond Roche's core oncology focus to our model, including crovalimab (hematology), rhPTX-2 (immunology), and fenebrutinib (neurology). We've also boosted our assumptions for COVID-19 diagnostics demand in the fourth quarter of 2021 and first quarter of 2022, removing the near-term diagnostics headwind and slightly smoothing out the expected decline in demand for full-year 2022. Finally, while we had assumed that passage of the Build Back Better Act could result in a U.S. statutory tax rate of 26% starting in 2022, we now assume the rate will remain at 21% at least through Biden’s remaining term, which ends in early 2025. We've therefore slightly lowered our long-term tax rate assumption for Roche from 21% to 18.5%. We continue to view Roche's oncology and diagnostics leadership as supporting a wide moat, and shares remain undervalued.