How far can CSL fall?
Stock CSL $202.15 as at 19/09/2018
Event
Plasma company CSL has been soft in September coming under pressure amid some profit taking in the recently strong growth area of the market. CSL is now down over 13% from its all-time high in early September, including another ~1.5% today – although this is still above where the stock was trading at the beginning of August and doesn’t take into account the $1.27 dividend paid last week. The question remains, why has the biotech stock come back so aggressively in a market that has been relatively stable? CSL currently trades on a PE of 33.1x, which isn’t all that stretched for healthcare or growth stocks if we look globally. It reached a high of 37.4x not long ago, but it is still ~30% above its historical average of 25x. The stock rerated over the past couple of years as it has been achieving huge growth, justifying a higher PE. Over FY18, earnings grew ~30% - a juicy number and companies with that kind of growth would generally trade closer to 40x than 20x earnings. So what price do you pay for CSL? Looking forward, earnings are now forecasted to grow at around 14% for FY19, steadily easing over the outer years to around 11.5% in FY22 – according to Bloomberg consensus. These are still great numbers, no doubt about it, with low double digit growth and a proven track record of meeting expectations will mean investors are happy to pay a higher multiple. But these numbers are less than half the growth the company was achieving when the market was paying 37x. With circa 12% growth over the foreseeable future, CSL certainly deserves to trade on a solid multiple, but 37x is too high in our view. On 25x forward earnings, which is its 5 year average, CSL is worth $156. A P/E of 30x equates to $180 a share. CSL Chart
