CSL looks set to overtake rival

As shareholders in biopharmaceutical developer and manufacturer CSL (ASX: CSL) are well aware, the company has an outstanding track record of revenue and profit growth. CSL’s share price has soared, resulting in a market capitalisation now standing at nearly $32 billion or US$29.8 billion at current exchange rates.

In contrast, one of CSL’s main rivals and a household name amongst global healthcare stocks, Baxter International (NYSE: BAX) has not grown profits anywhere near as quickly as CSL and likewise its share price performance has been far less impressive as the chart below highlights. As a result, Baxter’s market capitalisation is currently US$36 billion and remarkably means CSL is just 20% smaller than Baxter when measured by market capitalisation.

Five-year performance

CSL has a financial year end of June. For the 12 months to June 2009 the company earned US$845 million and earnings per share (EPS) of US$1.42. Meanwhile for the 12 months ended June 2013 the company earned US$1.216 billion and EPS of US$2.439. This implies profit increased by 44% and EPS by 71.7% over the five-year period.

In contrast, Baxter which has a financial year end in December reported net income of US$2.014 billion and EPS of US$3.16 for the 12 months to December 2008. Meanwhile for the 12 months to December 2012 the company reported net income of US$2.326 billion and EPS of US$4.18, implying a growth in profits of 15.4% and growth in EPS of 32.3% over the five-year period.


Source: Google Finance

Based on recent growth rates and guidance that has Baxter suggesting EPS will grow at between 7% and 9% per annum over the next four years, while CSL is guiding towards 10% growth in net profit after tax this financial year, it’s quite possible CSL will overtake Baxter’s market capitalisation before too long.

Foolish takeaway

The tailwind that investors enjoy from buying fast growing companies certainly can help achieve above-average investor returns. Investors also need to be aware that in these situations share prices can often overshoot on the upside though, and set a share price up for a correction if or when the growth rate slows.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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