The CSL Ltd (ASX: CSL) share price has staged an extraordinary recovery over the past few months.
After dropping to around $90 in June, the healthcare giant is trading at around $171.57 on Tuesday.
That is a huge change in a short period. But with the CSL share price still comfortably short of its highs, could there be another leg higher?
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The easy gains may be behind us
When the CSL share price was trading around $90, I thought the valuation looked exceptionally cheap for a company with its global healthcare operations and long-term growth potential.
Investors were pricing in plenty of disappointment following weaker guidance, restructuring, and uncertainty around the earnings outlook.
Since then, the CSL share price has risen by more than 90%.
At $171.57, I certainly would not describe the stock as dirt cheap anymore.
According to consensus estimates, CSL is expected to generate earnings per share of $9.01 in FY27, rising to $9.51 in FY28 and $10.10 in FY29.
That means CSL shares are currently trading on a PE ratio of around 19 times forecast FY27 earnings.
I think that still represents decent value for money, but the investment case has changed.
From here, I expect CSL's earnings growth to become much more important for the market than simply recovering from an unusually depressed valuation.
What would a $200 CSL share price mean?
A move from $171.57 to $200 would represent further upside of around 17%.
I do not think that looks unrealistic. At $200, CSL would trade at roughly 22 times forecast FY27 earnings.
Looking further ahead, that falls to around 20 times the FY29 earnings estimate.
For a global healthcare company with strong positions in plasma therapies and other specialised treatments, I think that valuation could be justified if CSL delivers on the earnings recovery currently expected.
What could push it higher?
CSL Behring remains particularly important to the outlook.
The business has opportunities to grow demand for its immunoglobulin and albumin therapies while improving profitability as plasma collection becomes more efficient.
Margin recovery would be encouraging because it could allow revenue growth to translate into stronger earnings growth.
There are also still challenges elsewhere in the group, including pressure within CSL Vifor. But if earnings rise towards the current FY28 and FY29 forecasts, I think investors could become increasingly comfortable paying a higher price for the shares.
Foolish takeaway
I think the CSL share price could reach $200, although the path looks quite different from the recovery out of June's lows.
At $171.57, the shares are no longer obviously cheap. They are trading at around 19 times forecast FY27 earnings after almost doubling in value.
For the CSL share price to move another 17% higher, I think the company will need to show that its earnings recovery is genuinely taking hold.
If it can do that, $200 does not look like an unreasonable valuation to me.
