The CSL Limited (ASX: CSL) share price may have surged to a record high on Thursday but there could be another circa 20% upside to the share price if more stars align for the blood products developer.
Shares in CSL jumped 1.6% to $320.62 on Thursday and is up 70% over the past 12 months compared with the 17% increase in the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.
CSL isn't the only one on a record high. The Wesfarmers Ltd (ASX: WES) share price, Ansell Limited (ASX: ANN) share price and Cochlear Limited (ASX: COH) share price have broken new records too.
Why CSL can trade at high premiums
Investors just aren't worried about sky-high valuations. The market is willing to pay nose-bleeding prices for "guaranteed" growth as these companies are in very good positions to lift earnings over the next year or more.
In case you've been living under a rock, growth is in very short supply these days and cashed up investors have a shrinking pool of options to park their capital.
This is unlikely to change in the foreseeable future, and that's why CSL is fearlessly trading on a 50 times trailing price-earnings (P/E) multiple.
Another 18% upside for CSL?
CSL supporters will be further emboldened by Morgan Stanley's assessment that fair value for the stock could be as high as $379 a pop!
To be sure, this isn't the broker's price target. The broker's 12-month price target for CSL is $306 a share, according to the Australian Financial Review.
But if CSL delivers a result that's ahead of the market's lofty expectations (and that can't be ruled out), then Morgan Stanley's bullish price target will become the new norm.
Earnings surprise
What could drive a better than expected result is a stronger than expected immunoglobulin growth. This is an area that CSL dominates.
Morgan Stanley is forecasting CSL to post revenue of US$4.7 billion ($6.96 billion) and net profit after tax of US$1.27 billion for the half-year. Management is guiding for a full year net profit of between US$2.1 billion and US$2.11 billion on a constant currency basis.
While CSL is already trading ahead of the broker's official price target, Morgan Stanley is sticking to its "overweight" (equivalent to a "buy") recommendation on the stock.
Perhaps it's assigning a better than even chance for CSL to deliver a pleasant surprise later this month. The rest of the market seems to be.
