Here's why these brokers say the CSL (ASX:CSL) share price might be overcooked

CSL is under the microscope again…

| More on:
Unhappy man looks into oven at burnt pizza.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The CSL Limited (ASX: CSL) share price got through the week unscathed, closing on Friday 1% higher to $315.50.

Shares in the global biotechnology company have now recovered to 3-month highs after slipping off the cliff-face back in September. Their investors gave up $26 a share in the course of a week, amid a wide selloff in the ASX 200 healthcare sector.

Whereas the S&P/ASX 200 Health Care index (ASX: XHJ) has gained around 5% this past month, the CSL share price has climbed 7%, with just one slight hiccup along the way.

Both have soared well past the benchmark S&P/ASX 200 Index (ASX: XJO)'s gain of just 0.2% at the time of writing.

CSL share price vs S&P/ASX 200 Health Care index YTD

Source: Google Finance. Google and the Google logo are registered trademarks of Google LLC, used with permission.

CSL is one of Australia's success stories. Established over a century ago, it now labels itself as a biotechnology leader, with a dynamic portfolio of life-saving products and a reputation for putting patients first.

So with that in mind, let's take a closer look at what the experts are saying about the outlook for CSL investors.

Blood plasma problems?

CSL is one of only a handful of large plasma collection companies in the world, and the bolus of its revenue comes from collecting blood plasma out of the United States.

In fact, in late October it was announced the company opened its 300th US plasma centre through its subsidiaries there.

Plasma donations are essential to modern-day medicine. They are used to produce therapies in a number of rare disorders. They are used in therapies for immunodeficiency, respiratory conditions, neurological disorders, and bleeding disorders such as haemophilia.

During the pandemic, plasma collection suffered a hit across the globe, due to government-enforced lockdowns in several countries.

The US in particular saw a massive decline, which had a flow-on effect for CSL due to its exposure there.

Fast forward to May 2021, where CSL was forced to increase the amount of cash it pays plasma donors in the US after collection volumes continued to fall sharply.

CSL's US competitor Haemonetics Corporation (NYSE: HAE) recently lowered its own plasma-grown guidance for the upcoming year as well. As such, CSL's plasma collection forecasts might be slightly overly optimistic, according to the team at Morgan Stanley.

What are the experts saying?

The investment bank notes it is modelling a 32% increase in quarterly plasma collections at CSL. However, it thinks the forecasts might be a bit top-heavy given Haemonetics' result.

It reckons this could be a threat to CSL's revenue in FY23, given the time gap between cash receipts for plasma collection and the end product. Haemonetics also noted the "delay in the acceleration of plasma collections in the quarter" in its earnings call.

Morgan Stanley notes although "it's early days, and collection trends appear volatile, recent data points could suggest at least some risk". It has a $280 price target on CSL shares.

Analysts at JP Morgan agree. It notes Haemonetics' results fell well short of internal estimates, and this poses a risk to earnings estimates on CSL.

The firm also notes that respiratory and COVID-19 infections are on the rise again in Europe and South East Asia. It says the "Immunisation Colonisation is predicting a tough flu season next year for Australia as international travel resumes and COVID-19 restrictions are eased". Most of CSL's vaccine revenue comes from "Northern Hemisphere flu season", it notes.

Researchers at both firms are reserved on CSL. Each of the investment banks believes Haemonetics' results could spell a slower recovery in plasma collection to pre-COVID levels.

Morgan Stanley values CSL at $280/share, whereas JP Morgan has a slightly higher valuation of $285/share. Each holds an equal weight and neutral rating respectively.

What's the sentiment on CSL's share price?

Of the 17 brokers covering CSL, there are 9 that recommend the share as a buy or are bullish on the direction of its share price.

This has remained fairly consistent over the past 2-year period. However, it is sitting below the number back in April and May of this year.

So far this month, CSL is gaining ground once again. It is up again for the month and is beating each of the broad indices.

CSL winning the race this past month

Source: Google Finance. Google and the Google logo are registered trademarks of Google LLC, used with permission.

The average price target is $316 from the group, implying an upside potential of around 0.16% on Friday's closing price.

However, the spread between the highest and lowest price targets is $72 per share, or 25%. Morgan Stanley and JP Morgan are each the most reserved on the CSL share price with respect to their group's valuation.

The  author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

Two people tired and resting after sports race.
Broker Notes

Fundie rates 2 ASX 200 stocks in short-term pain but with long-term gain potential

Blackwattle Investment Partners sees these 2 ASX 200 stocks as worthy of a buy and hold strategy.

Read more »

Two smiling work colleagues discuss an investment or business plan at their office.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Broker Notes

Guess which beaten down ASX share is rocketing 11% today

Why are investors buying this beaten down stock? Let's find out.

Read more »

Broker working with share prices on computers.
Broker Notes

These 3 ASX All Ords stocks just got sizeable broker upgrades

Top brokers expect strong performance from these ASX All Ords stocks.

Read more »

Man pointing an upward line on a bar graph symbolising a rising share price.
Broker Notes

Morgans says these ASX 200 stocks can rise 30%

Big returns could be on the cards for buyers of these shares.

Read more »

Successful group of people applauding in a business meeting and looking very happy.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

A group of stockbrokers sit in a room with several computer screens in front of them as they discuss the Zip share price and Zip's merger with Sezzle
Broker Notes

Here are the latest broker rating changes on 3 prominent ASX shares

Brokers have delivered a mixed bag this week.

Read more »

Two people climb to the summit and raise their arms in success as the sun rises brightly over the mountains.
Financial Shares

'Strong momentum': 2 ASX financial shares backed by top fundie for 2025

ASX financial shares had a strong trading session on Tuesday with several new price records set.

Read more »