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CSL Limited to become world’s number 2 influenza vaccine maker: Should you buy?

On Monday, CSL Limited (ASX: CSL) announced it will acquire the influenza vaccine production business of Novartis (NYSE: NVS), the world’s second largest biopharmaceutical by market capitalisation. CSL has a major flu vaccine business, bioCSL, which is the largest manufacturer in Australia.

With this US$275 million acquisition, the company will become the world’s number two flu vaccine producer. The combined businesses will have production facilities in Germany, the US, Australia and the UK.

In FY 2014, bioCSL had sales of $125 million. The new acquisition business had US$527 million in sales in the 12 months ended 31 December.

The CEO and managing director of CSL, Paul Perreault, said: “The Novartis influenza vaccine business provides bioCSL with a global leadership position in an attractive sector we understand intimately. It will transform bioCSL by giving it first class facilities and global scale as well as product and geographic diversity.”

Subject to approval, the company expects the acquisition to be complete in the second half of CY 2015. It is expected to be funded by surplus cash.

This move is another example of how CSL, a successful and growing company, can fund business expansion from its high profit margins for specialised biopharmaceutical products.

Share buyback

Apart from acquisitions, the company also has enough excess funds for a $950 million share buyback, which it announced earlier this month. That is equal in value to about 3% of its total market capitalisation. This is the eighth buyback over the past nine years.

Company earnings forecasts

The company expects net profit in FY 2015 to grow about 12%. Analyst consensus forecasts are for earnings and dividends to rise an average 14% annually over the next two years. Currently, the stock pays a 1.7% yield unfranked.

Share price and PE

With a price-earnings ratio of 25, CSL is towards the high end of its past PE range. Still, for a quality company of its size being able to grow earnings 10% – 14% annually is attractive for a long-term investment.

Having a defensive healthcare stock like that in your portfolio also means a stable, growing dividend for a number of years.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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