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On Monday, HSBC analysts revised their stance on Roche Holding AG (OTC:RHHVF) (ROG:SW) (OTC:RHHBY), downgrading the stock from Buy to Hold and adjusting the price target to CHF295 from the previous CHF338. The revision follows an adjusted valuation method and consideration of various financial factors.
The new price target of CHF295, according to HSBC, is derived using an Adjusted Present Value (APV) analysis. The analysts have based this target on a Weighted Average Cost of Capital (WACC) of 8.3%, an increase from the earlier 7.6%. This change reflects a new Biopharma sector premium of 1.00%, up from the previous 0.10%, and an Environmental, Social, and Governance (ESG) premium of 1.00%, slightly increased from 0.90%.
The unchanged components in the WACC calculation include a Risk-Free Rate (RFR) of 3.75% and an Equity Risk Premium (ERP) of 4.25%. Additionally, the beta used in the analysis has been updated to 0.81 from 0.7, indicating a change in the perceived volatility of Roche’s stock compared to the overall market.
The analysts at HSBC note that the new target price of CHF295 implies an upside potential of 15.8%. However, they have downgraded their rating to Hold from Buy. The reasoning behind this decision includes an outlook on upcoming clinical trial readouts in areas such as obesity and oncology, which might not support a re-rating of the company’s stock value.
Furthermore, HSBC highlights concerns over foreign exchange risks due to Roche’s exposure to the USD and potential headwinds in the diagnostics segment. These factors contribute to the analysts’ view that the risk-reward profile for Roche Holding AG is no longer as attractive as it was previously.
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