The pros and cons of buying CSL shares right now

It's an interesting time to consider this healthcare giant.

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CSL Ltd (ASX: CSL) shares have drifted lower over the last few months. The ASX healthcare share has dropped around 10% since July 2024, while the S&P/ASX 200 Index (ASX: XJO) has gone up more than 5% during that time. Significant underperformance makes me interested because it's possible that the share could turn around.

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But just because something has gone down doesn't mean it'll bounce back up. It's possible that the share price could keep going lower.

CSL shares are at almost exactly the same price they were five years ago. Investors want to see returns, so I'm going to consider whether the ASX healthcare share may be able to deliver positive returns from here.

First, I'll look at the positives.

Pros about the ASX healthcare share

The most important thing to know about CSL shares is that its profit is predicted to continue growing in the long term.

Profit is normally the key driver of the share price over the long term, so if CSL can keep growing its profit, then that should strongly support shareholder returns.  

Broker UBS thinks the ASX biotech share will grow its net profit after tax (NPAT) to US$3.39 billion in FY25. The profit is then forecast to grow every year until FY29 when it could be US$5.95 billion. This would represent a 76% rise in net profit between FY25 and FY29, which I think would be an excellent tailwind for the company.

The company itself said it has a medium-term annual double-digit earnings growth outlook.

Another positive I'll mention is the company's significant investment in research and development. If CSL stopped spending on R&D, its short-term profits would seem significantly stronger. But, I think it's a good thing the business invests a lot because it means it's improving its existing product range/services and potentially unlocking new ones. However, it doesn't always work. At its recent R&D briefing, it told the market it was stopping several clinical trials.

With its plasma collection business, it said the underlying fundamentals remain strong, with momentum in donation growth. It's also focused on its gross profit margin recovery, where it's "making good progress".

Negatives to consider about the CSL share price

Despite growing profit in recent years and a largely flat share price, the company's price-earnings (P/E) ratio is not exactly cheap. According to UBS, it's trading at 26x FY25's estimated earnings.

Another major potential negative for CSL, which is hard to measure, is the recent selection of Robert F Kennedy (RFK) Jr by the incoming President Donald Trump to be the US Health Secretary. Considering CSL is a biotech healthcare business that makes a substantial amount of its profit from its vaccine segment, the decisions that RFK Jr makes could significantly impact CSL if changes go against the company.

Finally, it doesn't seem as though CSL's Vifor acquisition is going as management would have liked so far, partly due to generic competition.

At this stage, I think I'd want to wait to see how the Trump administration will act on healthcare before deciding to buy CSL shares. But if the company can grow its profit by double-digits annually for the next few years, it could be undervalued today.

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 recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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