It's often pegged as the best share or company on the S&P/ ASX200 (ASX: XJO) and CSL Limited (ASX: CSL) has many fans among Australia's influential sell side analyst community.
On June 10 2019 the analysts at Goldman Sachs slapped a buy recommendation on CSL shares and $223 12-month share price target on the business. Today the stock changes hands for $224.30 to suggest that if Goldman's analysis is on the money investors won't get much capital growth in the year ahead.
CSL's core business is the sale of blood plasma or immunoglobulin products with Goldman's bullish on the outlook.
"We forecast double digit 3-year CAGRs for both Privigen (+10%) and Hizentra (+13%), driven by improved awareness/diagnosis and a positive shift onto the neurological indication, CIDP. IG represents 65% of our incremental growth forecast to FY21E and whilst IG performance/market conditions remain attractive we believe CSL is well placed to manage other risks in the business," wrote the analysts.
Zooming out a little it's worth noting that CSL sits in the middle of a sweet spot of rising public sector spending on healthcare products around the world.
For example even if the Australian or U.S. governments doubled their annual healthcare spends tomorrow, there would still be political and public demands for even more healthcare spending.
This is a point that over the long term supports great healthcare businesses such as CSL, Cochlear Ltd (ASX: COH) and ResMed Inc. (ASX: RMD).
These three companies are also notable as well because they reinvest a lot of operating cash flow into new products that help them remain market leaders while maintaining profit margins and pricing power.
Profit margins are especially important indicators for investors as to the quality of a healthcare business with rising profit margins a traditional buy signal for analysts, while falling profit margins are a sell signal as they normally represent competitive pressures, downsizing, and more trouble ahead.
CSL has industry leading margins and widened its EBIT margin from 25% to 30% in FY 2018 in a result that speaks to the strength of the business and explains in a small way why investors are bidding the shares higher.
Goldman Sachs is forecasting its EBIT margin will grow from 30.9% in FY 2019 to 32.3% in FY 2021, which would be a strong result if achieved.
Overall then CSL continues to look a good long-term bet for investors, but of course its valuation has run a little hard for now.
