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Top broker warns CSL share price set to fall over the next month

One of most popular stocks on the ASX is likely to fall in the short-term, if Morgan Stanley is on the money.

The stock in question is nonother than S&P/ASX 200 Index (Index:^AXJO) posterchild, CSL Limited (ASX: CSL).

The broker’s gloomy prediction appears to be playing out today. The CSL share price dipped 0.6% to $326.97 during lunch time trade when the top 200 stock index gained 0.5% in value.

The underperforming CSL also stands in contrast to other heavyweights in the health care sector. The Cochlear Limited (ASX: COH) share price jumped 1.2% to $191.77 while the Sonic Healthcare Limited (ASX: SHL) rallied 4.4% to $23.84 at the time of writing.  

Why the CSL share price could fall

There is a risk that shares in CSL could fall further. Morgan Stanley believes there is a 70% to 80% chance that the blood products developer will fall in absolute terms over the next 30 days.

“This is because the stock has traded up recently, making short term valuation much less compelling,” said the broker.

“Given outperformance, CSL’s share price reflects no/minimal risk from the COVID-19 pandemic, yet we see a reduction in raw material (plasma) collection.”

Not immune from COVID-19

The lower levels of plasma collection are due to social distancing measures as well as border closures in the US. CSL’s blood collection centres are largely located in that country.

The impact of this is CSL’s earnings per share (EPS) will be lower than consensus estimates for FY21, added Morgan Stanley.

What’s also notable is that the company’s costs are rising due to higher donor fees and advertising.

Morgan Stanley’s recommendation on CSL is “equal-weight” (which means “hold”) with a price target of $288 a share.

Is CSL a “buy”?

But not everyone shares this unenthusiastic view of ASX’s largest stock. UBS is sticking to its “buy” call on CSL.

The sharp rise in the unemployed in the US is likely to spur more donors to turn up at its collection centres (donors get paid in the US).

However, UBS believes that costs will continue to climb due to higher collection fees. It costs more to service new donors.

“EPS forecasts are reduced by 1-7% over the next 3 years (including a larger FX headwind in FY20),” said UBS.

“Notwithstanding plasma supply risk, CSL remains our preferred health care exposure based on the robust demand profile for products and relatively low level of gearing.”

The broker’s price target on CSL is $342 per share.

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Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear Ltd. and Sonic Healthcare Limited. 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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