Shares in blood products and influenza vaccine manufacturer CSL Limited (ASX: CSL) are up 1 per cent today at $144.20 near record highs as investors continue to bid the company up thanks to its impressive earnings growth and dominant competitive position.
In manufacturing and selling complex blood product therapies to public hospitals or other healthcare providers the group's revenue streams are protected by substantial barriers to entry
Consequently, it grew underlying profit 24% to US$1,337 million in financial year (FY) 2017 and is forecasting a net profit between US$1,480 million – US$1,550 million on a constant currency basis in FY 2018.
If it hits the mid-point of its guidance that would represent profit growth of 13.5% for FY 2018, although the guidance provided could produce profit growth of up to 16 per cent, with the U.S. dollar's level a further input variable.
Notably, over FY 2018 CSL has flagged its intention to ramp up investments in potential new cash-generating products including Calimmune and Momenta.
It's the group's ability to consistently lift profits at double-digit rates while investing heavily in new growth avenues that means it's regarded by some investors as the best blue-chip share on the ASX.
The return on equity has been between 40% to 50% over the past 5 years which suggests the stock's current valuation on around 32x analysts' estimates for $4.52 in earnings per share over FY 2018 is not outlandish.
After all this is a true blue-chip business with high barriers to entry that still looks a bargain compared to baby formula businesses like the a2 Milk Company Ltd (Australia) (ASX: A2M), or frothily valued tech bolters like WiseTech Global Ltd (ASX: WTC).
Moreover, government spending on public healthcare only ever heads higher over the long term and even if it were doubled tomorrow there would still be regular calls for more spending.
As such, CSL is a good long-term bet, although given its recent hot share price run I would build a position in the business slowly by starting with a small investment relative to total investable funds.
