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How Roche’s Valuation Compares to Its Peers

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Roche’s valuation

As we discussed earlier in this series, Roche (RHHBY) is a multinational pharmaceutical company focused on its Pharmaceuticals and Diagnostics businesses. From an investor’s point of view, forward PE[1. price-to-earnings] and EV-to-EBITDA[2. enterprise value to earnings before interest, tax, depreciation, and amortization] multiples are the two best valuation multiples to use when valuing Roche and other large pharmaceutical companies, given the relatively stable and visible nature of their earnings.

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Forward PE

On September 15, 2016, Roche traded at a forward PE multiple of 15.4x, which is much lower than the industry average of 18.1x.

Among its competitors, Bristol-Myers Squibb (BMY), Merck (MRK), and AstraZeneca (AZN) are trading at forward PE multiples of 19.3x, 16.2x, and 16.3x respectively.

EV-to-EBITDA

On a capital structure–neutral basis, Roche currently trades at ~10.4x, which is much lower than the industry’s average of ~12.3x.

Among its competitors, Eli Lilly (LLY), Novartis (NVS) and GlaxoSmithKline (GSK) are trading at forward EV-to-EBITDA multiples of 14.3x, 10.3x, and 15.7x, respectively.

Analyst recommendations

According to data generated on September 15, 2016, Roche’s stock has fallen ~6% over the last 12 months. Analysts estimate that the stock has the potential to return ~15% over the next 12 months.

Analysts’ recommendations show a 12-month targeted price of $35.10 per share compared to the last price of $30.52 per share posted on September 14, 2016. According to Bloomberg’s consensus, ~75% of the analysts recommend a “buy” for Roche (RHHBY), and 25% of the analysts recommend a “hold.” Changes in analysts’ estimates and recommendations are based on changing trends in the stock’s price.

Investors can consider the Vanguard FTSE Europe ETF (VGK), which holds ~2% of its total assets in Roche Holdings.

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