CSL hits all time highs

Can our largest pharmaceuticals company justify its share price?

a woman

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Pharmaceuticals company CSL Limited (ASX: CSL) has again burst through its all-time high share price, trading at over $62 today.

Not that that鈥檚 anything really new.

CSL has been on a tear since August 2011, when it was trading just above $27. Consistent growth in both profits and margins, as well as shareholder friendly buybacks have seen earnings per share rise by an average 14% over the past five years. In the last six months to December 2012, earnings per share jumped 30%, and the company expects to report profit growth of around 20% for the full 2012 financial year.

In the last twelve months CSL has seen its share price rise by more than 66%, compared to the S&P / ASX 200 Index (Index; ^AXJO) (ASX: XJO) of a relatively stingy 17%.

CSL April 2013

Source: Google Finance

21 years ago, CSL made just over $150 million in revenue and a $10 million profit. Revenues are now expected to be around $5 billion this year, while net profits of more than $1 billion have been common in the past five years.

With its strong cash flows, CSL has spent more than $3 billion in the last three years buying back shares. In fact, the company has had to create a special reserve, because it now has negative contributed equity.

CSL makes the majority of its revenues by selling blood plasma products, including vaccines, plasma-derived therapies to treat bleeding disorders, infections and autoimmune diseases. Recent reports surrounding deaths in China from a particular strain of avian (aka bird) flu, have put the spotlight back on CSL as a major global supplier of vaccines. CSL says it stands ready to assist the Chinese government with a vaccine, if required.

With the ability of chemists, bio-engineers and doctors to use blood-plasma products to treat many different types of diseases and illnesses, and the use of blood-plasma products likely to grow strongly as new uses are found, CSL appears to be in the perfect industry. It also helps that CSL spends a significant portion of its revenues on research and development, keeping it ahead of the pack.

While future growth looks almost assured, nothing can be taken for granted. So far the company has done a stellar job of producing outstanding results, with earnings growth tagging along for the ride. It would be hard to bet against the company given its record.

Australian pharmaceutical and healthcare companies continue to impress globally, including CSL, Cochlear Limited (ASX: COH), Acrux Limited (ASX: ACR) and Sirtex Medical (ASX: SRX). That shows the strength of our biotechnology industry, although not every company is guaranteed success.

Foolish takeaway

Currently trading on a prospective P/E ratio of around 24, CSL looks cheap compared to its long term average of 36. However, at around $62 it appears that perfection is being priced in, so investors may want to wait for a significant pull back before jumping in.

The dramatic run-up in the ASX 50 means many of our Aussie “blue chips” are trading for truly eye-popping prices. That’s why savvy investors are now seeking opportunity in smaller companies. Discover two fantastic small-cap opportunities now, in The Motley Fool鈥檚 brand-new research report,聽Two Small Cap Superstars聽— including names, codes, and all the details. Simply聽click here聽to download your聽FREE聽copy.

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The Motley Fool鈥檚 purpose is to help the world invest, better.聽Click here now聽for your free subscription to Take Stock, The Motley Fool鈥檚 free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.聽 This article contains general investment advice only (under AFSL 400691). Motley Fool writer/analyst Mike King owns shares in CSL and Cochlear.

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