The CSL Ltd (ASX: CSL) share price could be undervalued right now.
That's the view of analysts at Bell Potter, which have initiated coverage on the biotechnology giant this morning.
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What is the broker saying?
Bell Potter highlights that there is a lot to like about CSL. It notes that the company holds the number one and number two positions in its three key markets. These are plasma-derived therapies (CSL Behring), flu vaccines (CSL Seqirus) and iron deficiency products (CSL Vifor).
However, it is the CSL Behring business that makes the company a buy according to the broker. Speaking about the business, Bell Potter said:
Behring is CSL's largest division (72% of revenue) and we expect it will continue to do the heavy lifting in the near-term, both in topline growth and margin expansion. CSL's FY25 revenue guidance of 5%-7% (BPe 6.5%) is comprised of "high single digit" growth for Behring and "flattish" growth for Seqirus and Vifor.
Behring's more favourable outlook, coupled with its gross margin recovery to pre-pandemic levels (which we expect in FY28), results in confidence that CSL will be able to achieve its guidance of "annual double-digit earnings growth" over the mid-term, despite more challenging near-term prospects for Seqirus and Vifor.
CSL share price 'looks undervalued'
According to the note, the broker believes that the CSL share price is undervalued at current levels.
As a result, it has initiated coverage on the company's shares today with a buy rating and $345.00 price target. Based on its current share price of $300.58, this implies potential upside of approximately 15% for investors over the next 12 months.
Commenting on its buy recommendation, Bell Potter said:
Our price target for CSL is $345 which is determined through a combination of DCF and PE ratio methodologies. The PT is a 15% premium to the current share price and combined with the expected dividend yield of 1.5%, results in a total expected return of 16%. This is greater than 15% hence we initiate with a BUY recommendation.
In our view the stock looks undervalued on a PE ratio 18%/8% below 5yr/10yr historical averages and is set for double-digit earnings growth driven by the core Behring division. Short-term catalysts include the R&D investor update on 22 October and potential garadacimab HAE approval in the current quarter.
All in all, this could make the CSL share price a great option for Aussie investors this week.
