Shares in healthcare giant CSL Limited (ASX: CSL) continued to fall on Wednesday, bringing the total slump in share price to almost 13% since it reported full-year results on August 17. This is in stark contrast to peers Cochlear Limited (ASX: COH) and Sirtex Medical Limited (ASX: SRX) which both surged over 10% after reporting (albeit the latter has given up some of its gains in recent weeks).
Accordingly, with CSL's share price trading at a touch over $100, I thought it was time to revisit this S&P/ASX 20 Index (ASX: XTL) stalwart to see if its current price makes it a buy today.
CSL's results
On the face of it, CSL's results appeared robust. Management reported underlying revenue for the full year was up 8% in constant currency with underlying net profit after tax (NPAT) growing 5% (in constant currency) to $1.24 billion. (Not a bad result for a company with a market capitalisation of $47 billion odd, I must say!).
Nevertheless, the market was seemingly disappointed given CSL's statutory NPAT was down 11% on prior year (in constant currency). The sour grape in CSL's results was the performance of its newly acquired influenza vaccines business – Seqirus. Seqirus was acquired from Novartis AG on 31 July 2015 and disappointed with the business unit reporting sales of only US$652 million due to a weaker influenza season.
Although Seqirus' poor performance contributed a loss to the broader business, dragging group NPAT lower, I believe CSL's share price demise stems from overzealous market expectations, rather than poor results per se. This is arguably because of its high price-earnings multiple of 29x (after the 13% crash to share price).
Outlook
With the market setting such high expectations for CSL, any missed expectations are punished. Despite this, CSL's investment thesis remains intact in my books.
In its full year results, management reassured investors that group NPAT is expected to grow 11% in constant currency for the 2017 year, with earnings per share outstripping profit growth.
If earnings (EBITDA) grow by 14% next year (as guided by the CEO), CSL currently trades on a forward price-earnings of about 25x by my calculations. This makes it cheap by historical standards and worth a second look in my opinion.
Foolish takeaway
CSL is a global leader in blood plasma, immunoglobulin and vaccine products making it immune (pun intended) to economic cycles. Global demand for CSL's life-saving products makes it a solid defensive stock with unrivaled growth potential.
Although it continues to demand high price-earnings multiples, I believe the recent pullback in share price alongside its growth outlook justifies a purchase at present time.
Therefore, given the price slump, I reverse my earlier recommendation and rate CSL a buy today.
