The Motley Fool

Why this top broker has downgraded the CSL share price today

Those looking for an excuse to lock in some profit after the strong run up in the CSL Limited (ASX: CSL) share price got their wish today as Credit Suisse downgraded its recommendation on the market darling.

The CSL Limited share price tumbled 1.5% to $190.14 in after lunch trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index gained 0.5% and other stocks in the sector like the Cochlear Limited (ASX: COH) share price, RESMED/IDR UNRESTR (ASX: RMD) share price and Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price are making decent gains.

Has CSL’s share price run out of puff after the stock’s 35% surge over the past year?

Near-term headwinds

Credit Suisse seems to think so, at least for now, and warns investors not to expect a profit guidance upgrade from management when CSL reports its results next Wednesday.

One of the issues is a slowdown in US Immune globulin growth with the latest government data showing volume growth weakening from 11.4% in June 2018 to 6.7% in October 2018 on a 12-month rolling basis.

“We forecast 1H19F revenue of US$4,509mn (+9%), EBIT of US$1,627mn (+10%), underlying NPAT of US$1,218mn (+12%), and an interim dividend of US90cps,” said Credit Suisse.

“While consensus (and CS) forecasts are ~1% above CSL’s FY19 guidance range (NPAT US$1,880mn-1,950mn cc), we think management is unlikely to raise guidance at the 1H19 results, given the weaker Northern Hemisphere flu season could cause volatility in flu volume returns in 2H19.”

Credit Suisse has lowered its recommendation on the stock to “neutral” from “outperform” and cut its price target to $210 from $230 per share.

What to watch for in CSL’s interim results

There are three things that the broker will be looking out for when CSL announces its results on February 13.

The first is growth in its key products within CSL Behring. The second is the performance of its Seqirus division as it moves to higher margin vaccines.

The third is sales of CSL’s Haegarda drug as this could surprise on the upside as a new rival drug Takhzyro has suffered a slower-than-expected ramp up, according to Credit Suisse.

The drug is used to help prevent swelling and painful attacks caused by a certain inherited disease.

Foolish takeaway

CSL could lag through February but I think that any sell-off will present an opportunity for longer-term investors to buy the stock.

Notwithstanding some of the challenges raised by Credit Suisse, the longer-term outlook for CSL is still positive.

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Motley Fool contributor Brendon Lau owns shares of CSL Ltd. and ResMed Inc. The Motley Fool Australia has recommended Cochlear Ltd., Ramsay Health Care Limited, and 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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