Shares in Australia's biopharmaceutical giant CSL Limited (ASX: CSL) are likely to soar higher in morning trade after the company announced a big upgrade to its financial year 2017 profit guidance this morning.
The company previously advised the market that it expected net profit to grow 11% over financial year (FY) 2016 on a constant currency basis, after one off adjustments associated with the acquisition of the Novartis influenza business in late 2014.
However, it now expects net profit to climb 18% to 20% on a constant currency basis over FY 2016 thanks to a strong quarter ending December 31 2016 that was boosted by sales of its immunoglobulins and specialty products. For the six-month period ending December 31 2016 the company now expects to post US$800 million in profit, despite currency movements knocking US$20 million off the final result.
It seems CSL has delivered a very strong recent quarter as sales of its Seqiris and Novartis influenza products are likely to have benefited from the onset of the Northern Hemisphere's winter flu season over the quarter ending December 31 2016.
This is excellent news for investors and bodes well for the years ahead as doubts had been raised over the US$275 million acquisition of its Novartis business, although it now appears the substantial integration costs of around US$100 million are falling off, while the cost savings estimated at around US$75 million are accruing.
The company is also buying back around US$500 million worth of shares in FY 2017 which will further support what is likely to be a bumper year of earnings per share growth. Investors should note though that much of the buyback is being funded by debt issued at a weighted average rate of 3% with an average term to maturity of 12.5 years.
However, today's profit upgrade reinforces the impression that CSL is a very well run company (even if the debt profile is increasing) where the management team have a second-to-none track record that deserves the recognition of investors.
In my opinion CSL looks one of the two best healthcare shares to own over the long term on the ASX, with hearing implant provider Cochlear Limited (ASX: COH) the only other business with a wide moat and significant barriers to entry in its respective markets. Needless to say both these companies should be at the top of investors' shopping lists.
