Has the CSL (ASX:CSL) share price dropped back into the buy zone?

CSL shares have been declining. Is it now an opportunity?
The post Has the CSL (ASX:CSL) share price dropped back into the buy zone? appeared first on The Motley Fool Australia. –

Key points

The CSL share price has been falling in the last few weeks
The biotech company recently announced the major acquisition of Vifor Pharma
Brokers like the acquisition and currently rate the business as a buy

The CSL Limited (ASX: CSL) share price has been dropping recently. Over the last two months, it has declined around 14%.

CSL is a leading global biotech company. It develops and delivers innovative biotherapies and influenza vaccines that save lives, and help people with life-threatening medical conditions live full lives.

The business has delivered capital growth. Over the past 5 years, the CSL share price has risen 140%.

But how does the next year or two look for the business?

What’s impacting the CSL share price?

Plenty of ASX growth shares have fallen in recent weeks, so it’s not just CSL. Names like Xero Limited (ASX: XRO) and Afterpay Ltd (ASX: APT) have both dropped more than 20% recently.

For CSL, the big news over the last month or so has been the proposed acquisition of Vifor Pharma for A$16.4 billion.

What does Vifor do? It has an “outstanding team and a leading portfolio of products” with renal disease and iron deficiency. CSL also said that Vifor has a proven strategy of partnering and business development and licensing.

This portfolio of products will complement CSL’s existing therapeutic focus areas including haematology, thrombosis, cardiovascular and transplant, with a high-quality pipeline.

But it’s not just about diversification. Management think that CSL can help grow the Vifor Pharma business. CSL’s global reach, R&D capabilities and resources will help the delivery of the Swiss company’s products to patients.

The offer has already been unanimously recommended by Vifor Pharma’s board of directors. Vifor Pharma’s largest shareholder, Patinex, also likes the offer.

In terms of adding to profit, CSL expects it will add low to mid-teens to underlying net profit after tax (NPATA) per share in the first full year of ownership, including the full run rate of cost synergies.

What do brokers think of the deal?

Morgans likes the deal and thinks it adds value to CSL, whilst giving adding defensive earnings with more growth avenues.

Citi also thinks that the Vifor Pharma acquisition increases the value of CSL.

After the announcement of the acquisition both of these brokers increased their price targets for CSL by more than $10 per share.

Morgans now has a price target of $334.70 on the CSL share price, which suggests an upside of more than 20%. Meanwhile, Citi has a price target of $340 on the company, implying an increase of around 25%.

Profit expectations

When CSL announced the acquisition, it confirmed that its FY22 net profit after tax (NPAT) guidance was for an approximate range between US$2.15 billion to US$2.25 billion.

Citi’s projections put the CSL share price at 40x FY22’s estimated earnings and 31x FY23’s estimated earnings. The broker has a buy rating on the biotech business.

Morgans thinks that CSL shares are valued at 41x FY22’s estimated earnings and 35x FY23’s estimated earnings. It also rates the company as a buy.

The post Has the CSL (ASX:CSL) share price dropped back into the buy zone? appeared first on The Motley Fool Australia.

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More reading

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Why did the CSL (ASX:CSL) share price have such a lousy year in 2021?

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Afterpay Limited, CSL Ltd., and Xero. The Motley Fool Australia owns and has recommended Afterpay Limited and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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