The CSL Ltd (ASX: CSL) share price could be undervalued right now.
That's the view of analysts at Bell Potter, which have initiated coverage on the biotechnology giant this morning.
What is the broker saying?
Bell Potter highlights that there is a lot to like about CSL. It notes that the company holds the number one and number two positions in its three key markets. These are plasma-derived therapies (CSL Behring), flu vaccines (CSL Seqirus) and iron deficiency products (CSL Vifor).
However, it is the CSL Behring business that makes the company a buy according to the broker. Speaking about the business, Bell Potter said:
Behring is CSL's largest division (72% of revenue) and we expect it will continue to do the heavy lifting in the near-term, both in topline growth and margin expansion. CSL's FY25 revenue guidance of 5%-7% (BPe 6.5%) is comprised of "high single digit" growth for Behring and "flattish" growth for Seqirus and Vifor.
Behring's more favourable outlook, coupled with its gross margin recovery to pre-pandemic levels (which we expect in FY28), results in confidence that CSL will be able to achieve its guidance of "annual double-digit earnings growth" over the mid-term, despite more challenging near-term prospects for Seqirus and Vifor.
CSL share price 'looks undervalued'
According to the note, the broker believes that the CSL share price is undervalued at current levels.
As a result, it has initiated coverage on the company's shares today with a buy rating and $345.00 price target. Based on its current share price of $300.58, this implies potential upside of approximately 15% for investors over the next 12 months.
Commenting on its buy recommendation, Bell Potter said:
Our price target for CSL is $345 which is determined through a combination of DCF and PE ratio methodologies. The PT is a 15% premium to the current share price and combined with the expected dividend yield of 1.5%, results in a total expected return of 16%. This is greater than 15% hence we initiate with a BUY recommendation.
In our view the stock looks undervalued on a PE ratio 18%/8% below 5yr/10yr historical averages and is set for double-digit earnings growth driven by the core Behring division. Short-term catalysts include the R&D investor update on 22 October and potential garadacimab HAE approval in the current quarter.
All in all, this could make the CSL share price a great option for Aussie investors this week.
