Saturday 5 July 2014

Analysis of Roche Holding

Roche Holding, a Swiss healthcare company

Company: Roche Holding

ISIN CH0012032113 | WKN 851311   

Business: A Swiss healthcare company. Roche is divided into two divisions: Pharmaceuticals (with Roche Pharma, Genentec and Chugai) and then Diagnostics (with Roche Professional Diagnostics, Roche Molecular Diagnostics, Roche Tissue Diagnostics, Roche Diabetes Care and Sequencing Unit).

Active: Sales in over 150 countries so they are present world wide.

P/E: 20.3

This company was analysed due to a request from Mark posted on the Analysis Requests page.

contrarian values of P/E, P/B, ROE as well as dividend for Roche Holding

The P/E for Roche is far too high for me with 20.3 and what is insane high is the P/B with 11.8 which gives a clear no go from Graham. The earning to sales are excellent with 24% and the ROE is amazing with almost 58%. The book to debt ratio is a little too low with 0.5. In the last five years they have had -0.9% yearly revenue growth which is seriously bad, the earnings have however increased during the same period.
This then gives us a motivated P/E of around 10 which means that Roche is today overvalued by the market. They spend a big chunk of money on research since it corresponds to over 80% of their earnings nothing unusual for this line of business though. They pay an acceptable dividend of 3% which represents 60% of their earnings so they better keep increasing those earnings or maybe even better for a flat revenue company to start buying back shares.

Conclusion: Even though the ROE is excellent and the dividend is fully acceptable both Graham and I say no to this company. The P/E and P/B is simply too high at the moment. Seems as if many of the pharmaceuticals and consumer giants are up around a P/E of 20 today which to me would mean that if I would own them then I would definitely not sell them but I would also not buy any more shares at this semi high level.

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Mark said...

Thanks for the analysis .

Regards, Mark

Fredrik von Oberhausen said...

You are welcome Mark!