Is CSL (ASX:CSL) the best blue-chip share on the ASX?

The CSL share price is up 42% over the last 12 months, significantly outperforming the 4% gain of the ASX200. Is CSL the best large cap on the ASX?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Australia's leading biotechnology company CSL Limited (ASX:CSL) continues to demonstrate why it is one of the best large caps on the market after this month's profit upgrade propelled the stock to a new record high.

The CSL share price is now up 42% over the last 12 months, significantly outperforming the 4% gain of the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

A stronger second half

On May 18, CSL announced that it now expects net profit after tax for FY18 to be in the range of approximately US$1,680 million to US$1,710 million at constant currency. This was an 8% upgrade at the midpoint of the company's previous full year guidance of US$1,550 million to US$1,600 million at constant currency announced in February.

For the 6 months ended 31 December 2017, CSL's net profit after tax grew by 35% to US$1,086 million with earnings per share up 36% to $US2.40.

The company effectively guided for second half net profit after tax to be in the range of US$464 million to US$514 million. This month's upgrade now forecasts second half net profit after tax in the range of US$594 million to US$624 million, which is a 25% upgrade at the midpoint.

CSL's management attributed the profit upgrade to a number of factors including better-than-expected sales of Idelvion and Haegarda. A severe influenza season in the northern hemisphere has also seen a strong performance from the company's Seqirus division.

CSL also noted that the timing of its research and development investments in some if its clinical trials will deliver a positive financial impact in FY18.

The market has reacted positively to the profit guidance upgrade and CSL's share price is currently trading at a record high of $187.61 in morning trade. CSL is now the fourth-largest company on the Australian market after surpassing banking heavyweights National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ).

Foolish takeaway

CSL rarely trades at a cheap valuation with the company currently trading for around 37x FY18's earnings and 32x FY19's estimated earnings.

The company's impressive track record of high earnings growth justifies a premium valuation to the broader market. CSL's substantial investment in a phase 3 clinical trial of CSL112 that will evaluate its efficacy and safety in treating patients that have suffered heart attacks could also drive earnings growth if successful.

The larger end of the Australian market is dominated by companies operating in the financial services, resources and retail sectors. Most of these companies are growing earnings at a slower rate than CSL and tend to be income-oriented stocks with high dividend payout ratios.

A high dividend payout ratio can indicate that a company is not reinvesting enough of its profits in future growth opportunities to expand the underlying business. The consistent growth of CSL's underlying business and its commitment to research and development is why it stands out as one of the rare high growth large caps on the Australian market.

Investors looking for other revolutionary businesses may also want to check out these companies.

Motley Fool contributor Tim Katavic owns shares of CSL Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. 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 Scott Phillips.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »