What Led To A 30% Jump In Roche’s Stock In 2019?

by Trefis Team
Roche Holdings
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Roche’s (NASDAQ:RHHBY) stock price grew over 30% from around $30 levels by the end of December 2018 to $40 in 2019, primarily driven by expansion of the P/E multiple, along with revenue growth, a modest growth in margins, and lower share count. Roche’s stock price growth was higher than that for Merck and Johnson & Johnson’s stock over the same period. This outperformance can primarily be attributed to the company’s success with its relatively new drugs, such as Ocrevus, Perjeta, and Tecentriq, among others.

In this note we focus on the factors that drove growth for Roche’s stock in 2019. We can break down the movement in the stock price into three factors: 1. growth in revenue, 2.change in net income margin and share count, and 3. expansion of P/E multiple. You can look at our interactive dashboard analysis ~ What Factors Drove Over 30% Growth In Roche’s Stock Over The Last 12 Months? ~ for more details.

#1. Revenues Are Expected To Grow 5.2% From $60.7 Billion In 2018 To An Estimated $63.9 Billion In 2019. The Biggest Change In Revenue Was Driven By The Company’s Oncology Drugs Segment.

#1.2 Roche’s Revenue Growth Has Been Higher Than Some of Its Peers

#2. Adjusted Net Income Grew Largely In Line With Roche’s Revenues, With A Modest Decline In Expenses Growth Rate

  • Roche’s adjusted net income will likely grow from $15.9 billion in 2018 to $16.9 billion in 2019.
  • This can be attributed to modest margin expansion and mid-single-digit growth in revenues, as discussed above.
  • Total Adjusted Expenses will likely grow from $44.8 billion in 2018 to $47.0 billion in 2019, reflecting growth rate of 5%, which is in line with that for revenues. We discuss the factors that impacted the expenses in the below section.

#2.1 Total Adjusted Expenses Will Likely Grow From $44.8 Billion In 2018 To $46.7 Billion In 2019.

  • Notable change can be seen primarily in the income taxes, and Non-IFRS adjustments.
  • Look at our interactive dashboard analysis for in depth view on Roche’s non-adjusted expenses.

#2.2 Adjusted EPS Could See Steady Growth, Led By Higher Net Income

  • Roche’s adjusted EPS could grow from $2.31 in 2018 to $2.46 in 2019, driven by higher adjusted net income.
  • No. of shares will likely remain around the 6.9 billion mark.

#3. Price To Earnings Multiple for Roche Expanded Over The Last Year, And It Has Been Higher Than That of Johnson & Johnson, Pfizer, And Merck

  • Roche’s P/E multiple expanded from 12.5x in 2018 to 16.7x in 2019. This can partly be attributed to the trends in sales of the company’s new drugs, which so far has been able to more than offset the declines in older blockbuster drugs that face biosimilar competition.
  • This compares with Johnson & Johnson, which saw its P/E multiple contract from 15.9x to 14.1x over the same period. The stock price corrected in 2018-2019, amid multiple litigations filed against the company.
  • Pfizer’s P/E multiple also contracted from 15.5x to 12.5x, while Merck’s P/E expanded from 13.7x to 14.8x over the same period.
  • Note these multiples are arrived at by using the stock prices at December end for the respective year, and adjusted earnings reported (or expected) for the following year.

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