CSL shares: Buy, hold, or sell?

CSL Ltd (ASX: CSL) shares have staged a remarkable recovery over the past few months.

After a difficult period for the healthcare giant, the share price has rebounded strongly as investors have become more optimistic about its future.

But with much of that recovery already behind us, is CSL still worth buying?

Here’s how I see it.

Why I still like CSL

One of the biggest reasons I remain positive on CSL is the strength of its underlying business.

The company is a global leader in plasma-derived medicines, including immunoglobulin therapies used to treat patients with immune deficiencies and other serious medical conditions.

Demand for these treatments has been growing, and I think there is considerable scope for that to continue as diagnosis rates improve and more patients gain access to treatment.

CSL is also particularly well positioned to meet this demand.

Building a global plasma collection network and the manufacturing facilities required to produce these medicines takes enormous investment, specialist knowledge, and regulatory approval.

That gives CSL a competitive position that would be difficult for another company to replicate.

What I would like to see over the next few years is the company making better use of those advantages.

Plasma collection and processing costs have weighed on profitability, and improving efficiency across the network should help CSL generate stronger returns from growing demand.

Encouragingly, management is continuing to address this.

Last week, CSL announced an expanded relationship with Haemonetics, with plans to roll out its latest plasma collection technology across the company’s US collection centres by the end of 2027.

This is one of several initiatives aimed at improving collection efficiency, and I think these incremental improvements could add up over time.

Alongside the development and commercialisation of newer medicines, they give CSL several ways to strengthen earnings through to 2030.

What does the earnings outlook suggest?

I think the next few years should see CSL steadily rebuild its earnings.

Consensus forecasts point to earnings per share (EPS) of $8.96 in FY27, increasing to $9.50 in FY28 and $10.03 in FY29.

That represents annual earnings growth of approximately 6% between FY27 and FY29.

It is a relatively modest pace, but I think it provides a reasonable foundation for a business of CSL’s size.

There is also potential for stronger growth if plasma collection efficiency improves faster than expected, margins recover, or newer products deliver better results.

Of course, none of that is guaranteed. CSL still needs to execute its recovery plans, manage costs, and navigate the challenges that come with developing and commercialising medicines.

But I think the direction of the business looks positive.

Are CSL shares still good value?

This is where I think investors need to adjust their expectations.

CSL shares are trading around $184.65 on Monday, more than double their 52-week low of $90.

That is a substantial recovery, although the shares remain below their 52-week high of $222.47.

At today’s price, CSL trades on a P/E ratio of approximately 21 times forecast FY27 earnings, falling to around 18 times FY29 earnings.

I would no longer describe that as a bargain valuation.

The market is already pricing in some improvement, and I think investors should expect a more gradual recovery in the share price from here.

Nevertheless, I am comfortable paying that sort of multiple for a global healthcare leader with established competitive advantages and a reasonable outlook for earnings growth.

If CSL continues to improve profitability and grow earnings into 2030, I think shareholders could still enjoy good returns over the next few years.

Foolish takeaway

CSL is a buy for me, although the opportunity looks quite different from when the shares were trading closer to $90.

I think the business has plenty of room to improve, particularly as its plasma operations become more efficient and demand for its medicines continues growing.

At around $185, I would be happy to buy CSL shares and give the company time to deliver on that potential through to 2030.

The post CSL shares: Buy, hold, or sell? appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has positions in CSL. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.