Roche Earnings: Underlying Growth Beginning to Shine Through; Maintaining Our FVE

We're maintaining our CHF 379/$55 fair value estimate for Roche's nonvoting shares and ADRs following strong top- and bottom-line growth in the second quarter, as the firm's newer launches and above-market diagnostics growth are finally shining through as covid headwinds fade. Foreign exchange headwinds are also fading, and the firm saw 9% constant currency sales growth in the quarter (7% as reported). Management raised guidance for 2024 core EPS growth to high-single-digit from mid-single-digit (at constant currencies), which looks achievable as Roche's cost controls and manufacturing productivity efforts are becoming more apparent in its improving operating margins. In pharma, we think Roche has in-licensed a string of promising drug candidates in cardiometabolic settings (Alnylam's zilebesiran and Carmot's CT-388 and CT-996) and in immunology (Televant's TL1A), and additional bolt-on acquisitions could help support the firm's already full late-stage pipeline in oncology and neurology. In diagnostics, we think the firm's core business is performing strongly, but we're also looking forward to this year's launch of an automated mass spectroscopy platform as well as midterm potential for a differentiated next-generation sequencing product. We think Roche's drug portfolio and pipeline and leading diagnostics business continue to support a wide moat.