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), and makes flu-related products and performs pandemic-related services for Governments. Finally, Vifor makes products for iron deficiency and nephrology (renal/kidney care).
CSL has developed a reputation with Australian investors over many decades as being a reliable company and a consistent dividend payer. Many consider an investment in CSL to be an indirect play on the continuing rise in healthcare costs.
The case for Healthcare ASX shares
The S&P/ASX200 Healthcare Index (ASX: XHJ) has returned 2.43% per year over the last 5 years. That compares to the average of all ASX sectors of 3.47% over the same period. So, here are some of the reasons that you might want to add a healthcare company like CSL to your watchlist.
Sticky revenue
Most healthcare falls under the category of essential spending. In other words, when times are tough, healthcare spending is one of the last expenses that people will cut.
Healthcare companies are providing an essential service that isn’t affected by commodity prices or seasonal demand, so their revenue tends to be a bit ‘stickier’ than other companies – i.e. it’s more consistent. In fact, healthcare was the best performing sector during the GFC.
Growth potential
In the US, which accounts for more than 40% of global healthcare spending, it’s estimated that healthcare profits will increase 7% per year from 2022 to 2027, reaching US$819 billion.
Healthcare is a rapidly growing sector in general, but within the healthcare sector there are certainly some sub-sectors that stand out. For example, companies providing IT and data solutions and ‘software-as-a-service’ (or SaaS) are expected to grow at more than 15% per year from 2024 to 2030.
The ethical investor
A recent Morgan Stanley survey revealed that more than half of investors plan to increase their allocation to sustainable investments in 2024. With the rising interest in ‘ethical’ or ‘sustainable’ investing, sectors like healthcare that provide important public services could be well placed to benefit.
CSL share price valuation
One way to have a ‘quick read’ of where the CSL share price is would be to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a shareholder, but it can fluctuate year-to-year or between payments. Currently, CSL Ltd shares have a dividend yield of around 1.38%, compared to its 5-year average of 1.50%. Put simply, CSL shares are trading below their historical average dividend yield.
Be careful how you interpret this information though – it could mean that dividends have fallen, or that the share price is increasing. In the case of CSL, last year’s dividend was greater than the 3-year average, so the dividend has been growing.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the CSL share price.
