Mixed Views On Roche After Poor Interims

Roche of Switzerland has been downgraded to an underperform rating after disappointing interim results (Marketletters passim) by analysts at Morgan Stanley. They say that Roche has not become a low-quality company, but they do have reservations, particularly around how the company is valued.

They believe that the way in which the firm is valued does not take account of the variable quality of the earnings stream. They are also being more cautious about the firm's margin development. They note that Roche has a diverse product portfolio, which the analysts say tends to mean that margins do not reach the highest levels in the industry.

It is also noted that Roche is likely to continue to spend 17%-20% of pharmaceutical sales on R&D, and will be launching products in markets such as cardiovascular and central nervous system, which are already crowded. Factors such as these mean that pharmaceutical margins are likely to remain in the low 30s, rather than reach the high 30s of Glaxo Wellcome and Merck & Co.