CSL’s FY17 NPAT guidance implies US$1.38b net profit after tax.
The company has purchased 1.4m shares during 2HFY17, of the $500 million share buy-back program.
With the stock price now trading 28x FY18 earnings, much of the good news is priced in. FY18 revenue $7.2b, EBIT $2.2b, forecast net profit up 20% to $1.7b, EPS US$3.60, DPS US$1.75 places the stock on a forward yield of 1.8%.
We remain attracted CSL and look for the next Algo Engine buy signal to provide a discounted entry point.
The share price of CSL jumped almost 14% to $115.90 this week after surprising the market with a big earnings upgrade.
After posting a first-half profit of about USD 800 million, CSL expects net profits for the year ending June 30th to grow between 18 to 20% on a constant currency basis. This forecast included a USD 20 million headwind from unfavorable currency conversions in the AUD/USD.
However, as positive as the headline and resultant share price rally appear, we suggest that this earnings news needs to be considered within a broader context.
18 months ago the F17 NPAT expectation was $ USD 1.7 billion, 6 months ago it was USD 1.5 billion and the first estimate 2 months ago was USD 1.28 billion.
In essence, this week’s news that the profit outlook has been raised to USD 1.33 billion is considerably lower than the earnings figures that CSL was expecting just 6 months ago…….yet the share price has moved from $90.00 to $114.00.
Based on industry assessments about potential pockets of competition within the immunoglobulins area, the forward earnings trajectory could be revised again over the next few months.
As such, we consider CSL in the $114.00 to 120.00 price range to be full-valued.
Our Algo Engine triggered a buy signal at or near the recent lows of $92.