Australia | Jul 30 2007
By Chris Shaw
Much of the market has found the going tough over the past few trading sessions but CSL (CSL) shareholders have reason to smile today as the stock is trading higher on news the company has received US approval for the launch of a liquid form of its IVIG compound.
According to UBS, which rates the stock as Buy 2 with a price target of $105.00, the benefits for the company from the approval will begin to flow through in FY09 and so lead it to suggest the market is going to have to play catch-up in terms of its earnings estimates.
This is because moving to a liquid form of the compound provides the company with additional leverage given it is no more expensive to produce but is priced in the US at a premium of 15-20%.
As a result it sees yields for the group as likely to increase by that amount over time, supporting its top of the market earnings estimates. Currently the broker is forecasting earnings per share (EPS) for FY07 of 294c, rising to 359c in FY08 and to 512c in FY09. This compares to market consensus of 285c this year and 349c in FY08.
ABN Amro agrees there is potential margin upside as it estimates the move to a liquid compound could increases the company’s yield by 5-10%. To date it has not adjusted its forecasts though, its EPS estimates sitting at 275.7c this year, 346.6c in FY08 and 392.5c in FY09, while Credit Suisse is at 279.1c, 350.3c and 454c respectively.
Thomson One Analytics shows median earnings per share forecasts of 286c, 348c and 442c, indicating the potential upside if UBS estimates prove to be closest to the mark.
Much will depend on the speed at which the company is able to migrate its patients onto the new compound, ABN Amro suggesting by 2011 there could be around 40% of customers using the liquid version.
JP Morgan is more optimistic and expects it will take three years for 90% of patients to make the change, which it agrees offers some potential margin benefits given the liquid version has a longer shelf life and doesn’t need to be re-constituted prior to use.
Offsetting this is the broker’s view the company may have to offer the product at a discount to gain market share given it will be among the last to bring to market a liquid version. It points out some of this impact could be eliminated by further price increases given the market remains relatively tight.
As a result there is no change to its Overweight recommendation, which is supported by a price target of $109.75. Overall the FNArena database shows the stock is rated as Buy four times, Accumulate once and Hold five times, with an average price target of $95.53.
This target is unchanged from prior to the announcement as Macquarie points out the approval had already been factored into earnings estimates, but it remains at a premium to the median price target according to Thomson One of $91.84.
Investors like the news enough to have pushed CSL shares up 1.5% in today’s trading as at 12.20pm the stock was $1.29 higher at $88.94.