15% upside! Why Macquarie is keeping the faith in CSL shares

Would it be a mistake to give up on Australia's iconic healthcare giant now? Macquarie believes so.

| More on:
Confident male executive dressed in a dark blue suit leans against a doorway with his arms crossed in the corporate office

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

Key points

  • The CSL share price took a hit last week after announcing weaker forward earnings estimates
  • Macquarie has reiterated its outperform rating on CSL with a $326 price target
  • The company's defensive nature could prove worthwhile come August earnings season

The defensive sanctity of CSL Limited (ASX: CSL) shares was rocked last week when the biotech giant delivered a disappointing trading update. Shares went for an abrupt 8% trip to the downside in reaction to the news.

Despite lower forward earnings estimates, analysts at Macquarie remain confident in the company's future prospects. As a matter of fact, Macquarie Research has cautioned investors who are considering abandoning CSL in lieu of a better investment.

It could be worse elsewhere

Seldom does Australia's healthcare icon dish out a dissatisfying update. Pointing to higher-than-expected foreign currency headwinds for FY23 and margin pressures from stubbornly high donor fees in FY24, CSL's net profit forecasts fell flat.

Nonetheless, Macquarie analysts have not been dissuaded from their optimistic view on CSL shares. The investment bank has reiterated its outperform rating and $326 price target, acknowledging gross margin pressure in the short term for CSL's plasma segment, Behring, stating:

While we have moderated near-term gross margins for CSL Behring, outer-year forecasts remain largely unchanged with upside from pipeline contributions and improved Ig [immunoglobulin] yields.

With an [earnings per share] EPS compound annual growth rate of 14 per cent per annum over FY22-26, we continue to see the growth outlook as attractive for CSL.

Indeed, Macquarie is trying to focus on the forest and not the trees, counting on the long term remaining strong.

In addition, the team cautions the less defensive pockets of the share market could fare far worse. Expecting more downgrades to filter through, Macquarie sees peak pain in cyclical names in the August earnings season.

What are others saying about CSL shares?

Conducting a post-mortem on CSL after its update, analysts at Citi are mostly sitting in the positive camp as well. Albeit, they opted to prune their price target back to $340 — still hovering above Macquarie's target.

The lofty Citi target would suggest a further 19% upside compared to Macquarie's 15%. Either way, both would be a positive outcome for shareholders.

For context, CSL shares have failed to outperform the S&P/ASX 200 Index (ASX: XJO) in the last year. With a gain of 7.9%, the biotech is trailing the Aussie benchmark by 6.5% before dividends.

Motley Fool contributor Mitchell Lawler 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

Male doctor in a lab coat working at laptop looking serious.
Healthcare Shares

CSL shares are in the red for 2024. Are they a buy?

Meanwhile, the broader market has extended to new highs this year.

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Share Market News

Guess which ASX 300 stock is jumping 11% on big news

Big news is giving this stock an even bigger lift on Tuesday. What's happening?

Read more »

Two lab workers fist pump each other.
Healthcare Shares

Guess which ASX 200 healthcare stock is starting the week with a bang on big news!

What is getting investors excited today? Let's find out.

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

3 small-cap ASX healthcare shares 'with strong prospects'

Fund manager IML discusses why these 3 ASX healthcare shares are likely to rise in value.

Read more »

Shot of a scientist using a computer while conducting research in a laboratory.
Healthcare Shares

2 All Ords ASX healthcare shares making BIG moves on quarterly updates

These two ASX healthcare companies are seeing heavy trading on Thursday.

Read more »

A woman reclines in a comfortable chair while she donates blood holding a pumping toy in one hand and giving the thumbs up in the other as she is attached to a medical machine to collect her blood donation.
Healthcare Shares

'Trading at a discount': Why now is the time to buy CSL shares

This investing expert says CSL shares now represent an appealing buying opportunity.

Read more »

woman testing substance in laboratory dish, csl share price
Healthcare Shares

Here's what could impact CSL shares from the biotech's AGM

The biotech giant's leadership had plenty to say.

Read more »

Man with a sleep apnoea mask on whilst sleeping.
Healthcare Shares

Why this fundie is backing ResMed shares in FY25

There's plenty more upside, this fund says.

Read more »