Should I buy CSL shares while they're under $300?

Can investors make a healthy return with this biotech?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points
  • CSL shares have ducked under $300 again
  • The FY23 half-year result was another impressive result, with ongoing investment in R&D
  • With higher interest rates, I don’t think the CSL share price is a bargain, but ongoing strong profit growth could drive solid shareholder returns

The CSL Limited (ASX: CSL) share price has gone under $300 yet again after flirting with that milestone numerous times over the last three or so years.

For investors that don't know, CSL is one of the biggest businesses in Australia with a market capitalisation of $143 billion according to the ASX.

It's not exactly a household name. But, the ASX healthcare share is involved in a number of areas including developing treatments that "save and improve lives", as well as creating vaccines and collecting plasma.

The recent acquisition of Vifor has expanded its presence into iron deficiency, which can help patients with the conditions of heart failure, kidney disease, gastroenterology or inflammatory bowel disease, patient blood management and women's health.

I think one of the most important investment lessons to keep in mind is that as a company's profit grows, this should enable share price growth.

A doctor in a white coat sits at her computer with finger on mouth thinking about something in her office with medical equipment in the background.

Image source: Getty Images

Is the profit going to grow?

In the FY23 half-year result, the ASX healthcare share announced that its revenue had increased by 25% in constant exchange rate terms, while the underlying net profit after tax (NPATA) was $1.82 billion, an increase of 10% in constant exchange rate terms.

When the business announced its result, the company said that it's expecting that its NPATA – the underlying profit – for FY23 is expected to be between $2.7 billion to $2.8 billion in constant currency terms.

It said that the strong growth it had seen in plasma collections and its immunoglobulins franchise is "expected to continue". The launch of HEMGENIX in the US is "exciting" and that the rest of its research and development pipeline is in "great shape".

Its vaccine business, Seqirus, "continues to perform strongly" and it continues to work on the newly-acquired CSL Vifor business.

Profit growth could be supportive for the CSL share price.

Looking at the estimate on Commsec, CSL is expected to generate earnings per share (EPS) of $8.16. This could then grow by around 24% to $10.11 in FY24 and then increase another 18% in FY25 to $11.94.

So, it seems the business is predicted to grow earnings strongly from here.

Is the CSL share price a buy at these levels?

I think CSL is one of the strongest businesses on the ASX. However, it's certainly priced for success.

Using the FY23 estimate, CSL shares are valued at 36 times forward earnings. On FY25's estimate earnings, it's valued at 25 times FY25's projected profit.

Remember that interest rates have soared compared to where they were in 2019 and particularly through the COVID-19 pandemic. In theory, assets are not meant to be valued as highly when interest rates are higher.

CSL is a huge business. I'm not an expert on healthcare, but I know that it becomes harder for a company to grow when it becomes bigger and bigger. But, it helps that CSL is a global business with an expanding portfolio of products.

One of the best things about CSL is that it spends a lot on research and development. This unlocks new products and hopefully earnings. In the FY23 half-year period, it spent US$577 million on R&D, an increase of 25% year over year. If we remove R&D from the net profit, the valuation seems more reasonable.

If CSL can grow its EPS at a compound annual growth rate (CAGR) in the double digits over the rest of the decade, I think it can do well from here. I'd prefer owning CSL shares to some of the slow-growth ASX blue chip shares.

However, I wouldn't expect the next decade to deliver as much growth as the last decade.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. 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 Scott Phillips.

More on Healthcare Shares

Scientists in white coats look disappointed.
Healthcare Shares

$5,000 invested in CSL shares 12 months ago is now worth…

Are the biotech company's shares worth holding onto?

Read more »

Happy healthcare workers in a lab.
Healthcare Shares

Clarity Pharmaceuticals shares are up 12% today. Here's what's driving the move

Today's announcement moves Clarity a step closer towards commercialisation.

Read more »

A medical specialist holds a red heart connected via technology and artificial intelligence.
Healthcare Shares

Which ASX biotech's shares are rocketing higher on big US news?

This company has more than doubled in value over the past three months.

Read more »

A man with a wry smile on his face is shown close up behind ascending piles of coins as he places another coin on top of the tallest stack representing rising dividends
Healthcare Shares

Here's the dividend forecast out to 2030 for CSL shares

Can healthy dividends continue from CSL?

Read more »

A woman researcher holds a finger up in happiness as if making the 'number one' sign with a graphic of technological data and an orb emanating from her finger while fellow researchers work in the background.
Healthcare Shares

Forget CSL shares, this ASX healthcare stock could double in value

Brokers see significantly more upside ahead for Pro Medicus.

Read more »

Lab worker puts hands in the air and dances around.
Healthcare Shares

CSL shares look primed to take off — Here's why

Business remains robust and brokers see ASX stock soaring up to 100%.

Read more »

A group of people in a corporate setting do a collective high five.
Healthcare Shares

ASX 300 healthcare stock outperforming today on 'strategic' leadership news

The ASX healthcare stock announced the outcome of its CEO recruitment drive this morning.

Read more »

Cropped shot of a young female scientist working on her computer in the laboratory.
Healthcare Shares

Could Telix shares be a millionaire-maker stock?

Telix looks a compelling growth story, with brokers eyeing more than 150% upside.

Read more »