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CSL (ASX:CSL) share price hit by broker downgrade

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The CSL Limited (ASX: CSL) share price was a positive performer on Thursday.

The biotherapeutics company’s shares charged 3% higher to end the day at $289.00.

Why did the CSL share price charge higher?

Investors were buying CSL shares following the release of a strong half year result.

For the six months ended 31 December, the company delivered a 16.9% increase in revenue over the prior corresponding period to US$5,739 million.

This was driven largely by a 38% jump in Seqirus revenue, thanks to a 44% increase in seasonal influenza vaccine sales. Demand for flu vaccines has been exceptionally strong due to the COVID-19 pandemic.

Also supporting the company’s growth was its CSL Behring business, which reported a 9% increase in revenue. This was driven by solid growth in its core immunoglobulin portfolio, the successful transition to its own distribution model in China, and strong growth in HAEGARDA sales.

And thanks to margin expansion, CSL delivered a 45% jump in reported net profit after tax to US$1,810 million.


However, potentially holding the CSL share price back a touch, was that management has held firm with its full year guidance despite the strong first half profit growth.

It expects to report a full year net profit after tax of US$2,170 million to US$2,265 million at constant currency. This is in line with previous guidance and represents year on year growth of 3% to 8%. A big pullback from its first half growth of 45%.

Management also warned that plasma collections have been adversely affected during the pandemic and additional collection costs have been incurred.

CSL share price downgraded

CSL’s outlook didn’t go down well with analysts at Goldman Sachs.

The broker said: “By reaffirming the FY21 earnings target of +3-8% despite delivering a +25% beat at 1H, CSL is now guiding to an earnings decline of (47)-(58)% in 2H21. Whilst management has likely applied more than its usual degree of conservatism amidst so much uncertainty, it is also clear that the company is having to take tougher decisions on customer allocations than we had expected to see at this stage.”

“It has been long-understood that the plasma collection deficit would pressure FY21-22, but to see such a sharp sequential slowdown in IG during a period which was mostly unaffected by these challenges was a negative surprise to us/consensus, particularly ahead of two reporting periods which appear tougher still (1H21 volumes +3%),” it added.

As a result, the broker has downgraded its earnings estimates for FY 2022 and FY 2023 and is now forecasting “three consecutive years of single-digit earnings growth.”

In light of this, it believes its shares are overvalued at the current level.

“At current valuation of 29.3x EV/EBITDA (vs. sector 21.6x), we no longer see sufficient upside to justify a positive stance. We downgrade to Neutral (from Buy),” it explained.

Goldman Sachs has a $308.00 price target on the CSL share price.

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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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