The CSL Limited (ASX: CSL) share price has been a longstanding market darling of the S&P/ASX 200 Index (ASX: XJO) and All Ordinaries (ASX: XAO). However, could it be falling out of favour against explosive tech-enabled sectors such as buy now, pay later (BNPL), the resurgence of Aussie miners or even the recent strength of retail shares? Is it time to move on or could the CSL share price be a buy at today’s prices?
Fair growth but struggling share price
The ASX 200 has lifted more than 30% since its initial COVID-19 sell off back in March. In the same period, the CSL share price has remained flat overall. CSL’s inability to push higher is perhaps a telltale sign of its fading position as a market darling. This comes as a surprise as many would consider CSL as a forever share that has delivered phenomenal long-term shareholder value. Furthermore, CSL is arguably in a market leading position to assist in the prevention and treatment of COVID-19. So why hasn’t the CSL share price lifted like many other ASX 200 shares such as Fisher & Paykel Healthcare Corp Ltd (ASX: FPH), ResMed Inc (ASX: RMD), Ramsay Health Care Limited (ASX: RHC) and Sonic Healthcare Limited (ASX: SHL)?
COVID-19 business update
From a fundamental perspective, CSL provided the market with a COVID-19 update back in mid-April. This update reaffirmed its FY20 profit guidance of ~$2.110 to $2.170 million and its strong capital position of an estimated ~$1.1 billion available in liquidity. CSL stated that its plasma collection facilities will face increasing challenges amid COVID-19 restrictions, health concerns and pre-assessment requirements. Plasma collections are a foundation for CSL revenues, however its long manufacturing cycle means that today’s collections are likely to underpin sales for the next fiscal year.
CSL’s involvement in COVID-19 research, prevention and treatment remains a wildcard as the company only stated that it is pursuing COVID-19 responses consistent with its core R&D and manufacturing capabilities. The volatile environment has meant that it will experience modest delays in capital projects and clinical trials which may lag future revenues.
Foolish takeaway
All things considered, it is positive to see that CSL has reaffirmed its profit guidance. This represents FY20 growth of 10-13% which includes a one-off cost of transitioning to a new distributor model in China. Despite the CSL share price trading at a price-to-earnings (P/E) ratio of approximately 45, I believe the quality and consistency of its earnings compensates for what is arguably an expensive valuation.
Having said that, markets and investors may be expecting more from CSL with regards to COVID-19. The likes of Fisher & Paykel, ResMed and Ramsay Healthcare have seen material improvements in their earnings since the onset of the pandemic. The fact that CSL has reaffirmed its guidance may not be enough to prop up its share price. Furthermore, the long manufacturing cycle of plasma and the potential impact on FY21 earnings could be a potential earnings season risk.
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Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has recommended Ramsay Health Care Limited and Sonic Healthcare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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