Treasure Chest: CSL Not A One-Trick Pony

This story features CSL LIMITED.
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The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today's idea is on CSL.

By Greg Peel

Whose Idea Is It?

Morgans

The subject:

Morgans believes CSL ((CSL)) shares are materially undervalued.

More info:

While the threat of US tariffs and risk of drug-pricing reform under the Most Favoured Nation executive order and US policy changes under Health Secretary Robert F. Kennedy Jr. have negatively impacted investor sentiment across the global healthcare sector, Morgans believes current trading levels for CSL shares are significantly below fair value, pricing Australia’s largest biotech as less than a single-division company, with the main Behring division alone justifying a higher valuation and with no value assigned to either Seqirus or Vifor.

Americans pay the highest prices for drugs by a margin to other developed nations, even if developed and produced in the US, because the US has no system equivalent to Australia’s Pharmaceutical Benefits Scheme, which bulk-buys drugs on behalf of Australians and is thus able to distribute at a lower price.

This irks US president Trump, who sees the PBS and equivalent systems as a trade barrier worthy of a 200% tariff, but the threat is from TACO Trump.

Morgans describes Behring as the main engine room for CSL, representing over 70% of earnings, with a focus on rare and serious conditions like bleeding disorders, immunodeficiencies and neurological disorders. Solid plasma collections and ongoing strong demand underpin plasma-based product sales, with broad cost saving initiatives helping the recovery in gross profit margin to pre-covid levels of circa 58% by FY27-28.

Meanwhile, Seqirus is a seasonal influenza vaccine business, impacted by concerns around lower immunisation rates and uncertainty around the impact of RFK Jr’s war on vaccines. Such impacts appear to Morgans more transitory than structural, with multiple pandemic H5 avian flu tenders acting as offsets.

Jarden’s recent channel checks with a vaccine distributor, which is responsible for placing some 15% of flu vaccines in the US, indicated Seqirus forward orders for the 2025-26 flu season increased by around 10% year on year while rivals Sanofi and GSK saw increases of 5% and 3% respectively.

This is not a like-for-like comparison, Jarden warns, given this distributor has won some new accounts, boosting its market share, but nevertheless it still suggests Seqirus won market share. Although, with volumes broadly flat, Jarden’s contact has indicated all three manufacturers have been offering larger discounts and rebates than in previous years to maintain market share.

Bell Potter has lowered its Seqirus growth forecasts for CSL following several vaccine-related regulatory leadership changes in the US in recent months. Changes include an overhaul of the CDC’s vaccine advisory panel.

Bell Potter sees changes as contributing to broader negative vaccine sentiment and fatigue in the US, which is likely to linger over the coming seasons. CSL’s US flu vaccine business makes up around 8% of group revenue and circa 10% of group earnings.

Then there’s Vifor, which is focused on iron deficiency and nephrology. Vifor sales are slower than expected, Morgans notes, but starting to show some resilience. And there’s also CSL’s specialty products division.

After reviewing CSL’s modeling, Ord Minnett concluded last month growth in high-margin specialty products can help in offsetting narrowing margins in the blood plasma businesses.

This view was strengthened with last month’s US FDA approval for the Andembry injection (to prevent acute attacks in hereditary angioedema), which Ord Minnett expects will help the company return to solid growth in specialty products, forecasting a compound annual revenue growth rate of 5% for the specialty division over FY26-28.

Morgan Stanley also hailed Andembry’s approval, but had already assumed such in its forecasts.

While Behring continues to do the heavy lifting, ongoing cost right-sizing and unmet demand across all divisions gives Morgans confidence in a double-digit earnings growth trajectory for CSL over the medium term.

Over the past ten years, CSL has traded on an average enterprise value to earnings multiple of 24.7x, Morgans notes, ranging between 17-35x. Currently, CSL trades on 18.2x.

Morgans has joined other brokers in trimming its earnings forecasts and thus price targets based on lower sales assumptions for Seqirus and Vifor, but all of Morgans, Jarden, Bell Potter, Ord Minnett and Morgan Stanley retain Buy or equivalent ratings on CSL.

The range of targets set by these brokers is tight, ranging from $303.00 (Morgans, Morgan Stanley) to $313.12 (Jarden).

Among those who haven’t updated since the interim result in February, Macquarie stands out with a price target of $360.30. Citi’s target sits at $335.

Non-daily covered Wilsons is the stand-out with a price target that only goes as far as $250. Unsurprisingly, this is the sole Market Weight rating, with all others on Buy and equivalents.

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