CSL share price: why concerns over 2021 earnings remain

We examine some of the concerns over the biotech’s FY21 earnings outlook.

2021 earnings weakness potential weighs on the biotech

The CSL share price remains under pressure, with the stock down ~12% in the last six months. The general expectation appears to be that while the biotech will report strong earnings in FY20, profits are set to come under pressure in FY21 as a result of the coronavirus pandemic.

Even so, in the near-term, analysts expect healthy top and bottom-line growth from the biotech, with UBS expecting a beat on the company's top end FY20 earnings guidance, forecasting full-year income of US$2,207 million – implying an impressive year-over-year growth rate of 15%. On a more granular level, CSL’s Behring division – which accounts for more than 90% of the company’s earnings – is expected to report revenues of US$7,944 million, against earnings (EBIT) of US$2,559 million.

Looking forward however, the investment bank expects CSL’s fiscal 2021 earnings growth rate to slump to 6% – representing the company’s lowest growth rate in five years – as a result of reduced collections due to Covid-19. Even so, UBS has retained its Buy rating and 12-month price target of $331 on the stock.

CSL finished Wednesday’s session at ~$270 per share.

CSL share price: Covid-19 impact

The biotech itself noted that its all-important plasma collections would be impacted by the pandemic. In response, the company highlighted a number of mitigation strategies, including: the potential to accelerate collections once the pandemic has been resolved and the anticipation that new donors will emerge as a result of challenging economic conditions.

For reference, there is a six to nine month lag between the collection of plasma and its sale, which explains both the expected strength of CSL's current year earnings as well as the concerns over FY21 earnings weakness.

Despite the headwinds facing the company, UBS argued that there are a number of positives that could offset the impact of weak plasma collections, including demand for flu vaccines and the ‘normalisation of albumin sales in China under direct distribution model.’

Alternative data at a glance

Finally, in their latest research note, UBS analysts cited the just-released Q2 results from French pharmaceutical company Sanofi as being of particular relevance to CSL’s haemophilia product portfolio. Looking at the relevant aspects of this release, Sanofi reported modest sales growth from its rare blood disorder franchise, with total sales rising 6.2% to €314 million. On a division level, Eloctate sales fell 2.9%, while Alprolix sales rose 9.5% to €117 million.

Despite short-term weakness in its share price, CSL has proven to be a long-term winner, rising over 177% in the last five years.

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