This week has been a different experience for investors in Sirtex Medical Limited (ASX: SRX) and CSL Limited (ASX: CSL). That's because, while the former posted a rise of almost 10% following its results announcement, the latter saw its share price slump by as much as 6% following its company update.
Clearly, the share price performance of CSL in recent days is a disappointment for its investors, with the key reason behind it being the fact that the company missed its earnings estimates. However, it remains a sound company with long term growth potential and it expects underlying demand for its products to continue to grow.
In fact, CSL is forecast to increase its earnings by 10.5% per annum during the next two years which, given the uncertain outlook for the ASX and the wider economy, could stimulate investor interest in the stock. And, while CSL trades on a price to earnings (P/E) ratio of 24, its price to earnings growth (PEG) ratio of 2.3 holds appeal due to the company's reliable growth track record, with it having increased net profit at an annualised rate of 22% during the last 10 years.
Furthermore, CSL has completed the acquisition of Novartis' influenza vaccine business earlier than expected. This is good news for the company's outlook and will mean that CSL will be able to get on with the task of integrating the division, with the combined business having an even more extensive product portfolio and broader global reach. As such, CSL appears to be a strong buy at the present time.
However, Sirtex Medical offers higher growth prospects and a more appealing valuation than CSL. For example, it is forecast to grow its earnings by over 26% per annum during the next two years, with the cancer treatment specialist set to enjoy strong margin growth aided by favourable currency fluctuations and the high potential for a number of key clinical trials.
In addition, Sirtex Medical trades on a PEG ratio of just 1.65, which is considerably lower than that of CSL. And, looking back at the company's track record of growth, its bottom line has soared by 40% per annum during the last ten years and this should provide its investors with confidence in its ability to generate bottom line growth on a consistent basis.
Clearly, neither stock is a particularly enticing income play at the present time, with them having yields of 0.6% (Sirtex Medical) and 1.8% (CSL). And, while CSL is mulling over a continuation of its popular share buyback programme, Sirtex is set to increase dividends at a rapid rate and, in the medium term, could become a realistic income, as well as growth play. For example, dividends are forecast to more than double in each of the next two years, which puts Sirtex Medical on a forward yield of 2.7% versus 2.4% for CSL.
Therefore, due to its better growth prospects, higher income potential and lower valuation, Sirtex Medical appears to be a better buy than CSL.
