The race to become the market's first $100 stock has come to a grinding halt over the last few weeks. CSL Limited (ASX: CSL) and Commonwealth Bank of Australia (ASX: CBA) were the most likely to achieve this but recent global events have seen both retreat substantially.
CSL's share price has retreated by nearly 12% off its high and now is trading around $85. In order for it to reach $100 it will need to rise around 18% from its current share price. This would seem an impossible task with the volatility investors are experiencing currently.
But is it really that important for CSL's shares to reach $100 in 2015? There is no doubt in my mind that CSL shares will hit $100 one day, but it might not be in 2015. That doesn't mean investors shouldn't be thinking about taking a position in the company now and holding for the long term. Here is my reasoning:
Acquisitions
CSL has recently acquired the Novartis influenza business that will see it become the second largest global influenza vaccine producer. The company's strong balance sheet means it is in a good position for further acquisitions.
Currency Tailwind
CSL is a global company that earns a large proportion of its revenues in foreign currency. If the Australian dollar falls further, Australian investors will reap the benefits of higher AUD earnings after being translated from foreign currencies.
Manufacturing Scale
CSL is expanding its manufacturing facilities in Australia and the USA that will increase capacity and reduce costs through increased scale. CSL is already one of the most cost competitive manufacturers of blood products and further expansion should only strengthen this position.
Diversified Portfolio
Product innovation has always been at the core of CSL's success and the company has a pipeline of new therapies and new product approvals that should drive growth in the medium term. CSL already has a diversified portfolio of therapies that limits the company's exposure to one particular sector.
Shareholder Friendly
The company has been undertaking a $950 million share buy back that is only partially completed. This will support the share price in the short term and also result in earnings-per-share increasing faster than profit growth.
Strong Cash Flows and Growing Dividends
CSL's latest interim result showed it is producing strong cash flows and that allowed the dividend to be increased by 25%. Although the current dividend yield of around 1.6% does not look attractive, investors need to be aware the company needs to re-invest profits back into the business to maintain growth.
Global Expansion
CSL has been expanding into new and emerging markets including Japan, Chile, Turkey and Russia. CSL has also focused on expanding into China which could potentially be the world's largest market for blood therapies.
While all of these factors are positive for CSL, there is one major issue facing CSL at the moment. The blood plasma sector is a lucrative market and CSL will have to compete with new competitors as well as new products.
Foolish takeaway
The short-term impacts of increasing competition are already being experienced with the company forecasting full year earnings growth of only 10%. This may be one of the reasons why the share price might not reach $100 this year but my expectation is CSL will use its competitive advantages to increase its market share and ultimately trade well beyond $100 per share in the not-too-distant future.
