CSL Limited (ASX: CSL) 

CSL is engaged in the research, development, manufacturing, marketing and distribution of biopharmaceutical products and vaccines. The ASX-listed biotechnology company includes three businesses, CSL Behring, CSL Seqirus and CSL Vifor.

Recommendation Rationale – SELL at AUD 306.60

• Financial Performance: In the first half of FY24, CSL's revenue increased by 12% YoY, net profit after tax and amortisation (NPATA) went up by 13% YoY, and NPAT jumped by 20% YoY. However, Lengthy and costly approval processes for new products and potential delays or rejections can impact the company's product pipeline and revenue growth.
• Emerging Risks: The success of CSL depends on continuous innovation. Failure to develop new products or improve existing ones can affect long-term growth prospects.
• Overvalued Multiples: On a forward 12-month basis, the stock is trading at a Price/Earnings multiple of 29.7x vs industry (healthcare) median of 5.4x.
• Stock Enters Overbought Zone: On the daily chart, its 14-period Relative Strength Index (RSI) is showing a reading of ~70.79 (overbought zone), hence the stock may witness correction in the near-term.

CSL Daily Chart

Valuation Methodology: Price/Earnings Approach (FY June'25E) (Illustrative)

Stock might trade at a slight premium to its peers, considering higher revenue and earnings guidance for FY24, expected growth in sales of immunoglobulin products, and other factors. For valuation, few peers like Cochlear Ltd (ASX: COH), Ramsay Health Care Ltd (ASX: RHC), Sonic Healthcare Ltd (ASX: SHL), and others have been considered. Considering the share price movement, unfavourable outcomes in clinical trials, other risks associated with the business, and downside indicated by the valuation, it is prudent to book profit at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the closing market price of AUD 306.60 as of July 12, 2024.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 12 July 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.