Analyst Note| Karen Andersen, CFA |
We're maintaining our $59/CHF 438 fair value estimate for Roche following strong second-quarter results, with top-line growth of 14%. The strong performance was partly due to pandemic headwinds in the second quarter of 2020 creating weaker comparisons and partly due to strong sales growth for Roche's diagnostics and innovative drugs. Core operating profit was up 4% in constant currency in the first half versus sales growth of 8%, due to a higher contribution from the lower-margin diagnostics arm as well as increased investment in pharma R&D. Roche continues to re-route its investment from sales and marketing and into R&D, with 19% growth in R&D expenses in the first half of 2021 for the pharma division, which we think bodes well for Roche's long-term competitive advantages. Roche confirmed its guidance for the full year of low- to mid-single-digit constant currency top-line growth and core earnings per share growth in line with sales growth. We think Roche's combination of branded drugs and diagnostics continues to support a wide moat.