Global healthcare company CSL Limited (ASX: CSL) was an outstanding investment in 2013, once again proving why it is amongst the top stocks on the ASX. For the financial year, the company reported a 19% increase in net profit after tax and thanks to an ongoing share buyback a 24% increase in earnings per share (EPS).
With the company approaching a yearly spend of nearly US$500 million in research and development, the prospects for further growth in revenues and new product development are strong, however 2014 would appear to be something of a year of consolidation for CSL, with management forecasting revenue and earnings growth of around 10%, which is down on the prior year.
1) Earnings Growth
While 2014 is forecast to see moderate earnings growth, according to Morningstar Research consensus EPS growth is less than 1%, which accounts for the weaker Australian dollar on conversion of earnings. However, growth is forecast to pick up again in 2015, with EPS forecast to increase by nearly 12%.
2) Dividend Yield
With CSL's share price rallying 27% over the course of 2013, the dividend yield available to shareholders has declined. Although the board declared dividends of 104.2 cents per share (cps), which was up from the prior year of 83 cps. However, despite a forecast for dividends to increase to 113.4 cps next year, the forecast yield has slipped to just 1.65%.
3) Valuation
Just as the rocketing share price has affected the yield for CSL shareholders, so too has it affected the pricing. Twelve months ago when the share price was around $54, the company had reported FY 2012 earnings of 188.8 cps, representing an historic price-to-earnings (PE) ratio of 28.6 times. Today, with the share price at $68.60 and with EPS for FY 2013 of 262.1 cps, the stock trades on a PE multiple of 26.2.
Foolish takeaway
As investors can see from the pricing of CSL over the previous 12 months, while the stock may have looked fully priced a year ago, the share price still managed to increase by 27% and indeed trades on a lower multiple today.
It can be hard for investors to 'pay up' for high quality, growth stocks, but as CSL and Ramsay Health Care Limited (ASX: RHC) have proven, it can certainly be worthwhile. If CSL can continue to grow earnings and meet consensus in FY 2015, then using its current multiple as a guide, the stock could trade at $77.13.
