Should I buy CSL shares while they're under $300?

Can investors make a healthy return with this biotech?

| More on:

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

Key points
  • CSL shares have ducked under $300 again
  • The FY23 half-year result was another impressive result, with ongoing investment in R&D
  • With higher interest rates, I don’t think the CSL share price is a bargain, but ongoing strong profit growth could drive solid shareholder returns

The CSL Limited (ASX: CSL) share price has gone under $300 yet again after flirting with that milestone numerous times over the last three or so years.

For investors that don't know, CSL is one of the biggest businesses in Australia with a market capitalisation of $143 billion according to the ASX.

It's not exactly a household name. But, the ASX healthcare share is involved in a number of areas including developing treatments that "save and improve lives", as well as creating vaccines and collecting plasma.

The recent acquisition of Vifor has expanded its presence into iron deficiency, which can help patients with the conditions of heart failure, kidney disease, gastroenterology or inflammatory bowel disease, patient blood management and women's health.

I think one of the most important investment lessons to keep in mind is that as a company's profit grows, this should enable share price growth.

A doctor in a white coat sits at her computer with finger on mouth thinking about something in her office with medical equipment in the background.

Image source: Getty Images

Is the profit going to grow?

In the FY23 half-year result, the ASX healthcare share announced that its revenue had increased by 25% in constant exchange rate terms, while the underlying net profit after tax (NPATA) was $1.82 billion, an increase of 10% in constant exchange rate terms.

When the business announced its result, the company said that it's expecting that its NPATA – the underlying profit – for FY23 is expected to be between $2.7 billion to $2.8 billion in constant currency terms.

It said that the strong growth it had seen in plasma collections and its immunoglobulins franchise is "expected to continue". The launch of HEMGENIX in the US is "exciting" and that the rest of its research and development pipeline is in "great shape".

Its vaccine business, Seqirus, "continues to perform strongly" and it continues to work on the newly-acquired CSL Vifor business.

Profit growth could be supportive for the CSL share price.

Looking at the estimate on Commsec, CSL is expected to generate earnings per share (EPS) of $8.16. This could then grow by around 24% to $10.11 in FY24 and then increase another 18% in FY25 to $11.94.

So, it seems the business is predicted to grow earnings strongly from here.

Is the CSL share price a buy at these levels?

I think CSL is one of the strongest businesses on the ASX. However, it's certainly priced for success.

Using the FY23 estimate, CSL shares are valued at 36 times forward earnings. On FY25's estimate earnings, it's valued at 25 times FY25's projected profit.

Remember that interest rates have soared compared to where they were in 2019 and particularly through the COVID-19 pandemic. In theory, assets are not meant to be valued as highly when interest rates are higher.

CSL is a huge business. I'm not an expert on healthcare, but I know that it becomes harder for a company to grow when it becomes bigger and bigger. But, it helps that CSL is a global business with an expanding portfolio of products.

One of the best things about CSL is that it spends a lot on research and development. This unlocks new products and hopefully earnings. In the FY23 half-year period, it spent US$577 million on R&D, an increase of 25% year over year. If we remove R&D from the net profit, the valuation seems more reasonable.

If CSL can grow its EPS at a compound annual growth rate (CAGR) in the double digits over the rest of the decade, I think it can do well from here. I'd prefer owning CSL shares to some of the slow-growth ASX blue chip shares.

However, I wouldn't expect the next decade to deliver as much growth as the last decade.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. 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 Scott Phillips.

More on Healthcare Shares

A man sitting at a computer is blown away by what he's seeing on the screen, hair and tie whooshing back as he screams argh in panic.
Healthcare Shares

Game over? ASX biotech stock crashes 90% on big bad news

Is it game over for this stock? Let's find out.

Read more »

Three health professionals at a hospital smile for the camera.
Healthcare Shares

Should you buy low on these ASX healthcare stocks?

These two stocks could be poised for a bounce back.

Read more »

Woman with a concerned look on her face holding a credit card and smartphone.
Healthcare Shares

What on earth's going on with the CSL share price?

The company has long been one of the highest-quality businesses on the ASX, which makes its recent decline even more…

Read more »

Research, collaboration and doctors working digital tablet, analysis and discussion of innovation cancer treatment. Healthcare, teamwork and planning by experts sharing idea and strategy for surgery.
Healthcare Shares

These ASX healthcare stocks are set to thrive as the population ages

A powerful demographic tailwind, but can they execute?

Read more »

Cropped shot of an attractive young female scientist working on her computer in the laboratory.
Healthcare Shares

This drug developer could have huge upside, brokers say

Gains of more than 100% are not off the cards apparently.

Read more »

A medical researcher wearing a white coat sits at her desk in a laboratory conducting a test.
Healthcare Shares

Four ASX healthcare stocks which are looking cheap

These companies could be just what the doctor ordered.

Read more »

Two health workers taking a break.
Healthcare Shares

Bell Potter is tipping this exciting ASX healthcare stock to rise 80%

An important clinical trial announcement is good news for this healthcare stock.

Read more »

A woman looks nonplussed as she holds up a handful of Australian $50 notes.
Healthcare Shares

Is this one of the best ASX 200 stocks money can buy?

High margins, strong growth, and global expansion have helped this ASX company stand out to me.

Read more »