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Why the CSL Limited share price is looking up

Shares in biotechnology company CSL Limited (ASX: CSL) hit a new record high of $145.62 in Thursday’s trading session despite no announcement being released to the market.

CSL shares have soared 45% over the past 12 months after the Melbourne-based company continues to deliver excellent profit growth on the back of strong demand for its immunoglobulin and specialty products in conjunction with rising margins.

The company’s shares have now risen 14% after announcing its FY 17 numbers in mid August where it posted a net profit of $US1,337 million on a constant currency basis – a 24% improvement on 2016.

Future growth

CSL is not resting on its laurels either, with the company cancelling its successful share buyback program to redistribute its free cash flow towards an extensive capex program of between $US900 million and $US1 billion in FY 2018.

The capex program is geared towards enhancing the company’s growth prospects with substantial investments being planned to expand its fractionation capacity, increase the number of collection centres and boost manufacturing capacity for specialty products such as Haegarda and Berinert.

The acquisition of Chinese plasma fractionator Ruide should also contribute strongly to future earnings with the Chinese immunoglobulin market the fastest growing market in the world and a shortage predicted to occur over the next decade.

The influenza vaccine division Seqirus is also seeing revenue growth and is on the path to profitability.

Foolish takeaway

CSL remains one of the best Australian companies to profit from a depreciating Australian dollar with a considerable amount of its revenue derived in US dollars around the world.

The stock continues to be the star of the Australian healthcare sector and whilst far from cheap offers a more compelling valuation than fellow healthcare heavyweight Cochlear Limited (ASX: COH).

CSL has guided for FY 2018 net profit to rise between 11% to 16% at constant currency and trades at approximately 32x forward earnings. In contrast, Cochlear has guided for net profit to grow between 7% to 12% and trades at about 41 times forward earnings.

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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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