CSL Ltd (ASX: CSL) stock has been a strong performer over the long term with a rise of more than 300% over the past decade. Is the ASX healthcare share a good buy today?
The company is the largest biotech company in Australia, but the question is whether it can continue growing profit at a decent pace to push CSL stock higher. There are three factors I'll look at to decide if CSL stock is appealing.
Investing for growth
The business continues to put a lot of money into investing for the future.
For example, the new RIKA blood plasma donation system is meant to deliver a number of benefits. This system completes one collection in less than 35 minutes, on average, which reduces the donation time by around 30%. There is a rollout plan for the next 18 months for CSL's centres. The individualised Nomogram will reportedly improve the average donation yield by around 10%. There should also be a reduction in biohazard disposable waste by between 10% to 15%. The system will also help improve productivity and help boost the gross profit margin.
CSL continues to invest hundreds of millions of dollars in research and development across its various segments. That spending can unlock the newest healthcare treatments or vaccines, creating a new earnings stream, and helping CSL stock. In the FY24 half-year result, CSL said its R&D spending increased from US$593 million last year to US$669 million this year.
New Tullamarine site
CSL recently gave investors a site tour presentation, which included references to the new Tullamarine property, a state-of-the-art flu vaccine production facility.
The broker UBS said the Tullamarine building is under construction for CSL Seqirus, which will produce flu vaccines in cell culture. The new site is being built using a variety of techniques and facility configurations that will allow for "best in class" operational facility.
CSL will benefit from digital monitoring and release of batches, which UBS reported was described as "substantially labour saving".
Another benefit of this Tullamarine site will be better clean room security by placing machinery parts that need cleaning outside the clean environment.
The third benefit suggested by UBS was the ability to scale production at this facility as needed.
Good earnings growth expected
Estimates by UBS suggest the business is expected to see excellent earnings per share (EPS) growth over the next few years.
In FY24, owners of CSL stock are currently expected to see EPS of US$6.29 in FY24, US$7.45 in FY25, US$8.91 in FY26, US$10.69 in FY27 and US$11.86 in FY28.
If those estimates were to become reality, it would mean the CSL profit could grow by around 90% between FY24 and FY28. If that occurs, it would be very supportive for CSL stock in my opinion. Profit growth is one of the reasons why UBS has a buy rating on CSL stock with a price target of $330.
