CSL Limited (ASX: CSL) shares are in the red on Friday, down 0.48% at $276.97 apiece.
The market darling ASX healthcare share is down 1.7% in the year to date.
In February 2020, just before the pandemic market crash, CSL shares were trading in the $340 range.
The biggest impact that COVID had on the stock was the company's inability to collect enough plasma from donation centres due to lockdowns.
Now that the COVID emergency is over, is it time to buy?
In the Australian Financial Review (AFR), Fidelity's Zara Lyons outlines why she's positive on CSL shares.
Why buy CSL shares now?
1. Healthcare is defensive in today's economy
Lyons says Fidelity likes defensive shares such as healthcare in today's inflationary economy.
She explains:
Against this environment [of rising inflation and interest rates], the Fidelity Australian Equities Fund favours sectors with pricing power such as consumer staples, healthcare, insurance and communication services, and stocks with solid growth prospects.
2. CSL has a range of products
Lyons describes CSL as having "a diversified portfolio of assets with strong market positions and solid underlying demand".
The company has further diversified in recent years.
In 2022, CSL bought Vifor Pharma AG for $16 billion. CSL Vifor specialises in the treatment of iron deficiency, dialysis, nephrology, and rare kidney disease.
In the same year, CSL also received United States Food and Drug Administration (FDA) approval for its Hemgenix gene therapy to treat hemophilia B.
It is reportedly the world's most expensive medicine at US$3.5 million per dose.
3. The pipeline looks good
CSL is known for its heavy investment in research and development (R&D). Its policy is to spend 10% to 11% of annual revenue on R&D. In FY22, that meant US$1.16 billion.
The sheer scale of this budget sets it apart from other ASX biotechs. Lyons says CSL has some "attractive assets in its pipeline", including CSL112.
Lyons explains:
CSL112 is an infusible formulation of human apolipoprotein A-I, which is extracted from human plasma. CSL112 significantly elevates cholesterol efflux capacity, which has been shown to be inversely related to the incidence of cardiovascular events.
Top-line results of a blinded 17,000-patient phase three clinical trial are due by June 2024.
4. Market ignoring the prospective success of CSL112
Lyons says the market is currently not factoring in the potential returns and margins that CSL112 could generate for the company if the trial is successful.
She says:
Obviously, the outcome of the trial will be binary. However, I do not think the current share price incorporates any prospect of success for CSL112.
5. Expectations of improving yields
Like pretty much every business in existence, Lyons says CSL's costs have been rising due to inflation. But in time, these new costs will normalise.
She says:
The company has seen a slower recovery in margins post pandemic, due to several factors including wage inflation, donor fee inflation, costs associated with capacity expansion and costs associated with the rollout of plasma donation system RIKA across its collection centres.
However, some of these costs will normalise in time, and we expect yield improvements to materialise in the longer term. Following the recent market update, I think this is largely in the share price.
The latest price targets on CSL shares
Several top brokerage firms are bullish on CSL shares in FY24.
Citi has a buy rating on CSL shares and a 12-month price target of $340.
Macquarie has an outperform rating with a $326 price target.
Morgans believes CSL shares are "poised to break out this year" and has an add rating and $323 price target.
