Ord Minnett has raised its recommendation on CSL Ltd to Accumulate from Hold and its target price to $120.00 from $100.00 following the plasma supplier’s surprise earnings upgrade.
CSL guided to first-half FY17 net profit of US$800 million, up 35% on a year ago and testament to CSL’s strategy of aggressively investing in collection and fractionation capacity, which has allowed the group to again take advantage of a competitor supply issue.
The update implies only circa 10% underlying growth in the second half of FY17, but considering the upgrade reflects competitor supply issues, a portion of which are likely to be structural, we see upside to the company's full-year estimates. In fact, we believe the lack of investment in collection infrastructure by competitors should allow CSL to enjoy above-market growth from its core plasma operations for at least a further 18 months. This view underpins the mid-single digit EPS upgrades we have made to our estimates for FY18 and beyond.
Our FY17 net profit growth estimate is 21.5%, compared with company guidance of 18–20%. CSL is now offering two years of earnings growth of 20% or more and there is the potential for further earning upgrades if recent market share gains can be maintained.
The key risk to this outlook is news flow, with numerous trial results to be released during CY17, most notably for Roche’s ACE910 treatment for haemophilia A (haemophilia A is more commercially attractive than haemophilia B as it has a larger patient population and a greater unmet need), and Shire’s new hereditary angioedema therapy. Positive results for these rival products could cause material revisions to earnings estimates.