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Is the CSL share price a buy?

Is the CSL Limited (ASX: CSL) share price a buy?

It’s been a pretty decent month for CSL so far. Since the start of March the CSL share price is up from $193.76 to $198.97 at the time of writing.

Some of the rise can be attributed to the rise in the value of the ASX share market, but it could also be attributed to the returning confidence of investors in CSL.

The US Federal Reserve has recently signalled that it is much closer to the market neutral rate than previously thought. This provides support for higher valuations for growth shares like CSL. Interest rates act like gravity, the lower the interest rate the higher the theoretical valuation should be.

CSL is now trading at nearly 34x FY19’s estimated earnings again, which is quite expensive considering CSL predicted that net profit will come in at US$1.88 billion to US$1.95 billion in FY19, being growth of 10% to 14%, although the biotech company recently updated the market to say it expects the figure to be at the high end of this range.

The company may need to have a strong second half to achieve its targets considering revenue grew by 11% at constant currency to US$4.5 billion in the recently-reported FY19 half-year result, earnings before interest and tax (EBIT) increased by 6% to US$1.55 billion and earnings per share (EPS) grew by 10% to US$2.56 per share.

One of the great things about CSL is that it’s constantly investing for the future. In FY19 it plans to open 30 to 35 new collection centres for plasma.

The biotechnology company is also always in a research & development cycle for new products, which will create new revenue streams as they come online. For example, CSL said there are five new products going into human clinical trials.

One of the added bonuses about CSL is its growing dividend. In Australian dollar terms, CSL just grew its interim dividend by 20%, which was another raise after many years of increases.

However, the problem for new CSL shareholders is that the starting yield is very low. These top ASX shares have much more attractive starting yields and also continue to grow their dividend year after year.

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