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2 ASX shares I can’t ignore: CSL and COL

The CSL Ltd (ASX:CSL) share price is up 3.9% since the start of the 2024. It's probably worth asking, 'is the CSL share price good value?'
The CSL Ltd (ASX:CSL) share price is up 3.9% since the start of the 2024. Meanwhile, the Coles Group Ltd (ASX:COL) share price is 1% away from its 52-week high.

CSL share price in focus

CSL is a global biotechnology company that develops and delivers innovative medicines that save lives, protect public health and help people with life-threatening medical conditions live full lives.

The company is divided into three main business units: CSL Behring, CSL Seqirus and CSL Vifor. Behring, acquired in 2004, manufactures and distributes blood plasma products. Seqirus was formed by a rebranding of BioCSL and the acquired Novartis flu business (bought in 2015) makes flu-related products and performs pandemic-related services for Governments. Finally, Vifor makes products for iron deficiency and nephrology (renal/kidney care).

As previously mentioned, CSL’s plasma collection unit creates life-saving treatments for those will serious illnesses globally. CSL relies on plasma and blood collections to perform its primary businesses; and acquisitions are increasingly part of the CSL business. Investors often use CSL as an indirect play on rising spending on healthcare.

Since we consider CSL Ltd to be a blue chip stock, or a mature business, we like to look at things like return on invested capital (ROIC) and revenue growth as signs of sustainability. In FY23, CSL Ltd had an ROIC of 10.30% and revenue has compounded at 13.3% in recent years. Anything over 10% ROIC is pretty good for a mature-style business, since its cost of capital is likely below that level, so CSL Ltd crosses this hurdle.

COL shares

Coles is an Australian retailer providing customers with everyday products including fresh food, groceries, general merchandise, liquor, fuel and financial services. It was founded in 1914 in Victoria, where its HQ still remain.

Coles was formerly owned by conglomerate Wesfarmers from 2007 until 2018, when it was spun-off and listed as a separate entity on the ASX under the ticker symbol ‘COL’. Coles’ earnings are dominated by the supermarkets side of the business, however, it partly or fully owns or operates adjacent businesses like flybuys, Liquorland, First Choice, Vintage Cellars, Coles Express and more.

Every week millions of Australians choose to shop for essential food and drink at Coles because of its prices, range and location. While it is the smaller brother of Woolworths, which has nearly 40% market share, Coles isn’t too far behind, with about 28%.

Share price valuation

One way to have a ‘fast read’ of where the CSL share price is, is to study something like dividend yield thru time. Remember, the dividend yield is effectively the ‘cash flow’ to a share holder, but it can be influenced by yearly or bi-yearly fluctuations. Currently, CSL Ltd shares have a dividend yield of around 1.18%, which compares to its 5-year average of 1.28%. Put simply, CSL shares are trading below their historical average dividend yield.

Since it is a more mature-style business, the COL share price is offering a historical dividend yield of around 3.63%, which compares to its 5-year average of 3.88%. The Rask websites, especially our Rask Education platform, offer free tutorials explaining Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). Both of these models would be a better way to value the COL share price.

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