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The CSL share price has beaten the ASX 200 by 34% in 2018

The CSL Limited (ASX: CSL) share price has outperformed the market with biotechnology company seeing a 26% rise to $178 in 2018. With the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) falling by 8% this year, CSL shares have beaten the index by 34% in 2018.

The main catalyst for CSL outperforming the ASX 200 in 2018 was from 2 stellar earnings reports in February and August.

Another strong year

In FY18, CSL delivered a 14% increase in revenue to US$7,915 million with EBIT margins expanding from 25.6% to 30.1% helping net profit after tax surge by 29% to US$1,729 million.

Using constant currency is useful to smooth out fluctuations in foreign exchange rates which can materially impact a business that is global in nature. At constant currency, CSL delivered net profit after tax of US$1,713 million. The result exceeded the company’s own expectations by 13% at the midpoint of its initial FY18 guidance of US$1,480 million to US$1,550 million announced in August 2017.

The standout performers from CSL’s suite of products were from Privigen and Hizentra in immunoglobulins and from Haegarda in specialty products. According to CSL, Haegarda has been the most successful chronic drug launch in the past 5 years in the United States. The FY18 launch of Haegarda captured approximately 50% of the prophylactic market share in the United States.

Another noteworthy event in FY18 for CSL was the first profit of its vaccine division, Seqirus, which posted an EBIT profit of $52 million compared to the prior year loss of US$179 million.

Foolish takeaway

The healthcare sector has been the best performer on the Australian share market in 2018. CSL and other healthcare stocks such as sleep treatment specialist ResMed Inc (ASX: RMD) and drug manufacturer Mayne Pharma Group Ltd (ASX: MYX) have all comfortably outperformed the index this year.

CSL has not been immune to the bearishness that has grappled global equity markets over the last couple of months with the company’s share price falling by 23% from its record high of $232.69 on September 3.

However, investors should not be too deterred by the recent price action as the sell-off now sees the stock trade at 29 times forward earnings. This is a lower forward valuation multiple than what CSL shares have typically traded for in recent memory. With CSL continuing to generate strong earnings growth it would not surprise me if the company outperforms the market again in 2019.

Motley Fool contributor Tim Katavic owns shares of CSL Limited. The Motley Fool Australia has recommended ResMed Inc. 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.

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