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Here’s why you should stick with your CSL Limited shares

Health doctor nurse
Credit: Language translation

Biopharmaceutical CSL Limited (ASX: CSL) has been an Aussie success story for many years. It may even earn the bragging rights of being the first company in the S&P/ASX 200 Index (ASX: XJO) (Index: ^AXJO) to reach a $100 share price. It’s about $94 currently and now ahead of Commonwealth Bank of Australia (ASX: CBA), which is around $92.

That won’t make it a reason to buy the stock. However, I can give several reasons why the company is worth buying and holding for a long time. For financial strength, earnings growth and business development, it is a leading performer among the big ASX companies.

Balance sheet strength

First, take a look at the strong balance sheet. Its cash position rose to $1 billion as of December 2014, up from $608 million. It has taken on more long-term debt recently, yet the current level of $2.3 billion is less than 2 times more than its financial year 2014 earnings of $1.37 billion. With its cash and earnings capability, the company should have no problem with managing and paying its debt, making it financially rock-solid.

Earnings growth and profitability

Annual earnings per share (EPS) growth has been trending up for the past ten years, rising an average annual 21% for a solid performance. Its blood-related medical supplies like albumin and its viral and bacterial disease treatments are in high demand from healthcare providers.

In addition, these specialised products can command a premium price. Net profits are usually 20% – 24%, so this is no commodity-producer business. That gives the company protective “moats” around its business against competition.

                          CSL Limited     Annual earnings per share  10-year chart

csl eps chart

    Data from Morningstar

Growing world-class business

CSL is the largest ASX-listed biopharmaceutical company in Australia, but in the last 5-10 years its overseas business has grown dramatically. About 90% of its revenue is generated internationally, with its single biggest market being the US.

The company now has production facilities in the US, Germany, Switzerland and Australia to meet the rising demand. CSL sees China as the next big market as the highly populated country urbanises over the next 20 years. Already it is expanding its Melbourne production facilities to meet the expected demand.

On top of that, CSL will now become the second largest producer of influenza vaccine in the world with its latest acquisition of the vaccine business of multinational pharma company Novartis.

Together, these three reasons make CSL a strong long-term investment opportunity. Healthcare needs will always rise and specialised products will keep CSL in the black for years to come.

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As of 2.11.2020

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

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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