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Is the CSL share price in the buy zone?

The CSL Limited (ASX: CSL) share price looks to have turned a corner today and is charging higher. In afternoon trade the biotherapeutics company’s shares are up 4% to $289.69.

Though, despite this gain, the CSL share price is still down 15.5% from its 52-week high.

Why is the CSL share price underperforming?

The CSL share price has come under pressure over the last couple of months due to concerns over its plasma collections. This is particularly the case in the United States, where the vast majority of its plasma is collected.

These collections are vital to the future production of its immunoglobulin and albumin products. This means that a significant decline in collections because of the pandemic could lead to CSL falling short of expectations in FY 2021 and FY 2022.

Should you be concerned?

While I think it is likely that CSL will have seen a decline in collections during the pandemic, I’m not convinced it will be material enough to impact its future results.

Especially given the high level of unemployment in the United States, which I suspect could lead to more people donating plasma than normal once the crisis passes.

One broker that isn’t concerned is Goldman Sachs. This morning the broker reiterated its buy rating and $336.00 price target on the biotherapeutics company’s shares.

This was in response to CSL’s announcement that it is taking up its option to acquire Vitaeris. It is a clinical-stage biotechnology company which is currently focused on the phase 3 development of a treatment for rejection in solid organ kidney transplant patients.

Goldman Sachs is particularly positive on CSL’s transplant franchise and sees a lot of potential in its pipeline.

It commented: “We believe the most compelling opportunities under development are within the Transplant franchise (clazakizumab, CSL842 and CSL964), for which we assign a total risk-adjusted valuation of A$24 per share (62% of total).”

In respect to clazakizumab, which comes over with the acquisition, Goldman estimates that it could generate peak non-risk adjusted sales of US$5.4 billion by FY 2032 and risk adjusted sales of US$1.3 billion. It places a 25% probability of success on this.

Should you invest?

While there is still a lot of work to do before clazakizumab is a bona fide product, it certainly does look like it has the potential to be a key driver of growth in the future. 

And it’s not the only product under development. CSL has a growing pipeline of potentially lucrative products which could underpin solid earnings growth over the next decade and beyond. It is because of this, that I think its shares deserve to trade at notable premium to the market average.

In light of this, I think the pullback in the CSL share price is a buying opportunity for long term focused investors.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. 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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