It was absolute bedlam for CSL Limited (ASX: CSL) shares yesterday following the release of a market update. A surprising upward revision in currency conversion impacts and a lower-than-expected FY24 guidance sent shivers down the spine of investors.
The Australian pharmaceutical giant was dealt a blow to its share price in response on Wednesday. At its deepest depth, the CSL share price reached a low of $282 during the session, equating to a fall of around 8.5%. Though, the market became more forgiving as the day went on, with the share price finishing at $287.25 as the closing bell rang out.
Now worth 6% less than it was at the beginning of the week, could the fall represent a favourable opportunity to buy CSL shares?
Hardly a business that is on life support
As covered by my colleague Bernd Struben, CSL is forecasting net profits after tax and amortisation (NPATA) of between US$2.9 billion and US$3.0 billion for FY24 on a constant currency basis.
This fell below what analysts had anticipated. However, given this would still represent an increase of between 13% to 18%, it sure could be worse. Some would argue that companies don't miss estimates; analysts miss reality.
Ultimately, a long-term shareholder should be more interested in the general direction of the business. Based on yesterday's update, the trend is still heading in the right direction, suggesting continued growth in earnings moving forward.
The bulk of concern is around higher donor fees required to source plasma for CSL Behring's therapies. This area of the business is responsible for around 63% of the company's total revenue, making it quite important.
On yesterday's investor call, CSL's chief financial officer Joy Linton commented on the fee pressure, stating:
Donor fees and labour costs have increased across the industry. Now COVID is receding, it is not a simple matter of just reducing donor fees. It is unlikely that donor fees will ever go back to pre-COVID levels.
Another pessimistic note was the mention of a generic rival for the company's Ferinject medicine. Added to its arsenal through the acquisition of Vifor, Ferinject now faces competition in 15 countries.
A potential substitute for CSL shares
The homegrown healthcare behemoth has remained popular among analysts up until yesterday's announcement.
Other articles published this month have revealed the upbeat view on CSL shared by Morgans, Market Matters, and Morgan Stanley — with one of the three holding a $339 price target on the company's shares.
Based on the latest guidance, CSL is now trading at around 31 times FY24 guided earnings. For a high-quality business with a diversified portfolio of products, that may not necessarily be expensive.
However, I have recently had my eyes on Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) which is valued at 23 times FY24 consensus estimates. The US-based company makes money through the sale of its cystic fibrosis medicine, Trikafta.
Though, one could consider CSL shares a more defensive investment due to its broad range of treatments.
