The pros and cons of buying CSL shares right now

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

| More on:
Shot of a scientist using a computer while conducting research in a laboratory.

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

sdf

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.

Created with Highcharts 11.4.3CSL PriceZoom1M3M6MYTD1Y5Y10YALL1 Jul 202425 Nov 2024Zoom ▾1 Jul15 Jul29 Jul12 Aug26 Aug9 Sep23 Sep7 Oct21 Oct4 Nov18 NovJul '24Jul '24Aug '24Aug '24Sep '24Sep '24Oct '24Oct '24Nov '24Nov '24www.fool.com.au

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.

More on Healthcare Shares

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

3 ASX companies that are global leaders

Numerous ASX companies have extended their reach beyond Australia to dominate in their fields.

Read more »

Three people in a corporate office pour over a tablet, ready to invest.
Broker Notes

Bell Potter just slapped a buy on this ASX 200 share offering a 30% return

Which stock is being tipped as a buy? Let's find out.

Read more »

Happy healthcare workers in a labs
Healthcare Shares

Macquarie initiates coverage of Neuren Pharmaceuticals shares; forecasts 45% upside

The broker described Neuren as a standout in the ASX biotech sector.

Read more »

A woman leans forward with her hand behind her ear, as if trying to hear information.
Healthcare Shares

Does Macquarie think Cochlear shares are a buy, hold, or sell?

Macquarie has released a new note on Cochlear following the company's FY25 profit guidance change.

Read more »

Stethoscope with a piggy bank in the middle.
Healthcare Shares

Up 18% this year, does Macquarie expect NIB shares to go higher?

This expert has a bold prediction for NIB.

Read more »

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

Why is the Mesoblast share price up 11% in June?

The ASX biotech share reached a 10-week high of $1.94 today.

Read more »

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

Up 51% since the tariff pain, is it too late to buy Pro Medicus shares?

After rocketing higher, is the ASX healthcare share still an opportunity?

Read more »

A woman wearing a yellow shirt smiles as she checks her phone.
Healthcare Shares

CSL shares push higher on US FDA approval

This biotech giant has been given a boost in the United States.

Read more »