CSL Ltd (ASX: CSL) shares have come under pressure over the past few years.
While the recent market rally has sent many ASX 200 stocks back toward their all-time highs, CSL remains materially behind.
The ASX 200 healthcare stock is often promoted as one of the highest quality companies on the ASX. In 2019, CSL rose around 50%.
However, shareholder returns have not reflected this profile in recent years.
Over the past 5 years, the share price has fallen 19%. For the year to date, it is down 15%, significantly underperforming the S&P/ASX 200 Index (ASX: XJO) which is up 4%.
Slower earnings per share (EPS) growth and rising debt as a result of the Vifor acquisition has driven underperformance.
Given these challenges, shareholders may be wondering whether the stock is undervalued or will continue to underperform.
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JP Morgan predicts significant upside
Let's see what leading broker JP Morgan & Chase Co (NYSE: JPM) had to say.
After reviewing its most recent half-year result in February, the broker affirmed its overweight rating on the stock.
JP Morgan also reiterated its price target of $315. At the time of writing, CSL shares are changing hands for $240, suggesting 31% upside from here.
In the 12 February research note, the broker wrote:
We are increasingly confident in the strength of the Behring business, led by strong Ig sales (likely to have gained market share) and efforts to lower cost per liter, which have led to a solid lift in gross margins.
JP Morgan cited Seqirus as the key disappointment:
Seqirus reported a surprising loss in market share, with sales down 9%. With the backdrop of low vaccination rates and the loss of a key contract for the high-margin Fluad vaccine, Fluad sales fell 17%, while cell-based Flucelvax was down 12% in cFX. The 18-65 age group saw the largest drop in vaccinations, with a reported 50mn fewer patients being vaccinated this season than in 2020/21. Management guided to a low-single-digit drop in Seqirus revenues, as avian flu contracts support a stronger 2H.
What are other fund managers saying?
In its May update, fund manager Wilson Asset Management listed CSL as one its top 5 overweight stocks in its WAM Leaders (ASX: WLE) listed investment company.
WAM Leaders applied active management to identify large-cap Australian companies listed within the ASX 200 Index with compelling valuations.
The fund will be 'overweight' in stocks that it considers undervalued, and 'underweight' in stocks it considers overvalued.
Bell Potter has also retained a buy rating on CSL shares with a price target of $305.
Foolish Takeaway
It's been a tough ride for CSL investors over the past 5 years, with CSL shares materially underperforming the index. However, experts are suggesting CSL shares are currently undervalued. This suggests existing shareholders should hold on. Investors looking for opportunities in the current market (which sits just below its all time high) might want to take a closer look at CSL.
