The CSL Limited (ASX: CSL) share price has risen by almost 10% in July. But can the ASX healthcare share keep rising?
Despite gaining around 15% since mid-June, it's still down around 8% from its 52-week high in November.
During July, the S&P/ASX 200 Index (ASX: XJO) has gone up more than 3%. So, while the performance of just a few weeks is a very short-term timeframe in investing, CSL has beaten the index.
The healthcare giant claims to be the number one global player in protein therapies, a $37 billion industry. It also says it's the number two in influenza vaccines, which is a $6 billion industry. CSL generates revenue of more than $10 billion across more than 100 countries.
It has spent billions of dollars on research and development to create the next generation of treatments and vaccines.
Pathway back to growth
In a recent investor presentation, CSL noted that COVID-19 has been a tailwind for its vaccine business, but a headwind for its blood plasma business.
However, CSL outlined a number of areas where the business can get back to growing after the effects of COVID-19. As such, these factors could be useful for boosting the CSL share price over time.
The ASX healthcare share said that its plasma collections are improving and are now around pre-COVID levels.
To date, product demand has been limited by supply, but this is expected to improve.
CSL's gross profit margin is expected to return to pre-COVID levels over time. Improved efficiencies will also help, while an improvement in plasma volume will reduce the fixed cost per unit.
The company also said that a digital transformation is underway. Plasma donation pre-screening can be done through an app and people will know the value of their next donation.
CSL also outlined changes that will improve flow for donors and efficiencies in the future. Namely, all testing will be done bedside and a continuous nomogram, or graphic calculation, will increase the yield per donor while also improving donor safety. CSL pointed out that the total donation time will be reduced by more than 30%.
CSL is continuing to invest in capacity expansion. There is also a cluster of late-stage research and development (R&D) programs.
Finally, its Vifor Pharma acquisition could also be a boost for the business.
Reasoning behind the acquisition
CSL is buying Vifor Pharma for US$11.7 billion. Vifor was described as a world leader in the discovery, development, manufacturing, and marketing of pharmaceutical products for the treatment of kidney disease and iron deficiency.
CSL management said this acquisition would add a durable and growing business to its portfolio, across complementary and adjacent franchises. It builds a significant renal franchise, while CSL's global reach, R&D, capabilities, and financial scale will help global expansion, according to the company.
The acquisition is also expected to enhance CSL's scale and free cash flow. Cash flow is one of the main ways that investors can evaluate a business.
Can the CSL share price keep rising?
A price target is where a broker thinks the share price will be in 12 months from the time of the opinion.
Morgan Stanley has a price target of $312 on CSL with an 'overweight' rating — a positive rating.
Macquarie has an 'outperform' rating on the company, with a CSL share price target of $312.
Citi is one of the most optimistic, with a price target of $330 and a 'buy' rating. That implies a possible share price rise of more than 10%.
