BofA Upgrades to Buy, Deutsche Bank Downgrades to Sell By Investing.com

Investing.com — Swiss drug and diagnostics maker Roche (SIX:) has mixed views from two major brokerages. BofA securities upgraded Roche to “buy” with a price target of CHF 340, due to the company’s positive growth outlook.

Meanwhile, Deutsche Bank downgraded the stock to “sell” with a price target of CHF 235, citing concerns about Roche’s R&D productivity and competitive position.

BofA’s upgrade to “buy” reflects a positive outlook on Roche’s future. The brokerage believes that the downgrade cycle of Roche’s earnings per share (EPS), which has seen a significant decline over the past three years, has now reached its peak.

BofA projects a recovery in Roche’s EPS, forecasting a FY25 estimate that beats consensus by 3%. This expected rebound is due to a stronger-than-expected performance of key products such as Xolair, used for asthma and urticaria, Vabysmo, which targets retinal diseases and improving pharmaceutical margins.

At the heart of 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, a selective oral estrogen receptor degradator (SERD) for breast cancer, which BofA projects will reach peak sales of CHF 7 billion (risk-adjusted at CHF 2.8 billion).

Fenebrutinib, a BTK inhibitor for multiple sclerosis, is expected to achieve peak sales of CHF 5 billion (risk-adjusted at CHF 1.8 billion), while Prasinezumab, a potential first-in-class therapy for Parkinson’s disease, could record peak sales of CHF 5 billion (risk-adjusted to CHF 750 million).

Reflecting confidence in Roche’s ability to return to growth, BofA set a price target of CHF 340, applying a P/E ratio of 16x FY25E.

BofA is particularly excited about Giredestrant, despite concerns about previous failures of similar drugs.

The brokerage expects positive results from ongoing phase III trials, differentiating Giredestrant from previous disappointments in the category.

On the other hand, Deutsche Bank’s downgrade to “sell” signals concerns about Roche’s direction and R&D productivity. The brokerage fears Roche’s declining innovation, particularly in oncology, which has been a core area for the company.

Deutsche Bank is skeptical about Roche’s ability to maintain its competitive edge, which may lead to weaker growth over the long term.

In addition, Deutsche Bank raised red flags about Roche’s late and undifferentiated entry into the obesity market.

Despite previous excitement about Roche’s obesity assets, recent data suggests that these products may not offer differentiation from competitors.

This prompted Deutsche Bank to cut its price target from CHF 235 to CHF 265, applying a P/E ratio of 13x FY24.

The stock market downgrade also reflects disappointment with 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 has concerns about Roche’s oncology pipeline, particularly in immuno-oncology, an area that has previously driven significant growth.