The CSL Limited (ASX: CSL) share price has fallen 4% to $186 since the release of the biotechnology company's interim result last Wednesday. Despite the recent drop in the company's share price, CSL is still up 19% over the last 12 months and has outperformed other healthcare companies such as Cochlear Limited (ASX: COH) and Fisher & Paykel Healthcare Corp Ltd (ASX: FPH).
Another solid result
For the half-year ended 31 December 2018, CSL reported sales revenue of US$4.4 billion at constant currency, an 11% rise over the prior corresponding period. Net profit after tax at constant currency increased by 10% to US$1.2 billion and earnings per share grew 10% to US$2.56. The key drivers for the rise in earnings were from Immunoglobulins, Specialty Products and Seqirus.
Increased demand for CSL's Immunoglobulin products Privigen and Hizentra were crucial in sales rising 12% to US$1.7 billion at constant currency. Sales of Haegarda more than tripled and resulted in Specialty Products sales rising 13% to US$810 million at constant currency.
The sales growth from Immunoglobulins and Specialty more than offset the 2% and 4% top-line declines from the Haemophilia and Albumin segments, with overall product sales from CSL Behring up 8% to US$3.5 billion at constant currency.
Seqirus shines
At Seqirus, the division's portfolio of influenza vaccines has been transitioning towards the higher valued Quadrivalent vaccines. Sales of adjuvanted influenza vaccines increased by 109% over the prior corresponding period and was the main catalyst in the division delivering top-line growth of 21% to US$957 million at constant currency.
Seqirus reported first-half earnings before interest and tax of US$304 million, a 65% rise over the prior corresponding period. Furthermore, it reaffirms the substantial turnaround in the division's fortunes after it posted a full-year loss of over $200 million 3 years ago. Investors should note that due to the seasonality of the business and its significant first-half skew, the company expects to report a loss in the second-half.
Outlook
CSL's management expects FY19 net profit after tax at constant currency to be at the upper end of its previously announced guidance of US$1,880 million to US$1,950 million. The market's reaction to the company's earnings and guidance suggests that it was pricing in a rise in FY19 guidance.
Consensus estimates for FY19 earnings per share have been lowered from US$4.30 a month ago to US$4.22. Adjusting for foreign exchange, this prices CSL at around 31 times FY19 earnings.
Looking forward, consensus FY20 estimates have also been lowered from US$4.88 to US$4.74 over the last month. This prices CSL at around 28 times FY20 earnings for earnings growth of around 12%. This is roughly in line with recent averages.
I think CSL is one of the best businesses on the ASX. However, at current prices from a valuation perspective I think it is a hold. In the event of a market correction and a more compelling valuation, I would be happy to buy more shares of CSL.
