CSL share price in focus
Previously a government body, CSL is today a publicly-listed 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 core business units: CSL Behring, CSL Seqirus and CSL Vifor. Behring, acquired in 2004, manufactures and distributes blood plasma products. Seqirus is responsible for making 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 strong reputation with Australian investors over many decades as being a reliable company and a consistent dividend payer. With the continual rise in healthcare costs and the consistent historical performance, interest in CSL shares remains high today.
The appeal of Healthcare ASX shares
The S&P/ASX200 Healthcare Index (ASX: XHJ) has returned 1.75% per year over the last 5 years compared to 4.24% per year from the broader ASX 200. Here are three key reasons to consider adding a healthcare company like CSL to your investing watchlist.
Sticky revenue
Healthcare spending (in most cases) is essential spending, making it one of the last areas people cut back on during tough economic times.
Unlike cyclical businesses affected by commodity prices or seasonal demand, healthcare companies benefit from stable and consistent revenue streams. We sometimes call this ‘sticky’ revenue. Evidence of this fact is that healthcare was the best performing sector during the GFC.
Growth potential
Global healthcare spending, particularly in the US – which accounts for over 40% of the global total – is projected to grow significantly. Estimates for the US are 7% per year from 2022 to 2027, reaching US$819 billion.
Within the broad sector of healthcare, certain sub-sectors stand out for their additional growth potential. For example, healthcare IT, data solutions, and ‘software-as-a-service’ (or SaaS) companies are forecast to grow at more than 15% per year from 2024 to 2030, a rate that would get most investors interested.
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 growing interest in ‘ethical’ and ‘sustainable’ investing, sectors like healthcare that provide essential public services are well-positioned to attract new capital and investors.
CSL share price valuation
One way to have a ‘fast 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 1.39%, 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.
