Is CSL Limited a buy at this share price?

Credit: Pictures of Money

CSL Limited (ASX: CSL) is one of only a handful of ASX-listed companies which can boast of a share price trading above $100.

The triple-digit figure is great news for long-term shareholders as it marks a milestone for what has been an unbelievably successful story.

While historical returns may have been stellar, what matters now is deciding what expectations of the future to draw.

Here are four reasons why the future appears bright for CSL.

1. “History does not repeat itself, but it does rhyme” – this is a quote attributable to Mark Twain which certainly has application for investors.

Looking back at the historical performance of CSL – which includes a total shareholder return of 21.2% per annum over the past decade – it’s clear that this has been a top performing company.

Long-term outperformance such as this is generally a sign that a company possesses some form of moat and competitive advantage. Although there is no certainty that CSL will maintain its moat or its competitive advantage there is arguably a good chance that it will.

2. Huge R&D spend – part of the reason investors can expect CSL to continue its winning ways is due to the company’s significant spending on research and development (R&D).

For the six months ending 31 December 2015, R&D costs increased to $284 million from $233 million in the prior corresponding half.

A committed large R&D budget such as this positions CSL to continue development of breakthrough treatments.

3. Shareholder friendly – CSL has undertaken multiple share buybacks in recent years which have increased earnings per share whilst still maintaining a conservative balance sheet.

Currently there is a $1 billion on-market share buyback underway of which approximately 25% has been completed.

4. Strong growth forecast ahead – according to one analyst consensus forecast, CSL is expected to earn around 367 cents per share (cps) in financial year (FY) 2016. In FY 2017 earnings per share are forecast to leap to about 482 cps. (Source: Thomson Consensus Estimates)

Based on a share price of $103 this implies a FY 2017 price-to-earnings ratio of 21.4 times. Arguably this isn’t excessive given the high quality nature of this business.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks 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 policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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