CSL share price in focus
CSL is a global biotechnology company that creates and delivers life-saving medicines, aiming to protect public health and improve the quality of life for those with life-threatening conditions.
The company operates through three main divisions: CSL Behring, CSL Seqirus, and CSL Vifor. Behring, acquired in 2004, focuses on manufacturing and distributing blood plasma products. Seqirus, formed from the rebranding of BioCSL and the acquisition of Novartis’ flu business in 2015, develops flu-related products and provides pandemic-related services to governments. Vifor specializes in products for iron deficiency and nephrology (renal/kidney care).
CSL has built a strong reputation among Australian investors for its reliability and consistent dividend payouts, making it a popular choice for those seeking exposure to the growing healthcare sector. Many view CSL as an indirect investment in the rising global demand for healthcare.
The appeal of ASX Healthcare shares
The S&P/ASX200 Healthcare Index (ASX: XHJ) has returned -1.48% per year over the last 5 years compared to 3.52% 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 US growth 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 ‘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 1.53%, compared to its 5-year average of 1.50%. Put simply, CSL shares are trading above their historical average dividend yield.
Be careful how you interpret this information though – it could mean that dividends are growing, or it could mean the share price is falling. 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.
