CSL - let your profits run

CSL remains a stock of choice in 2015. With the AUD now heading rapidly towards ‘fair value’ and likely to overshoot (as the Fed increases rates in 2015 and the RBA possibly lowering theirs), the tail winds from FX will only amplify CSL’s leading position.

Source: Bloomberg

As the global leader in biopharmaceutical products, CSL Ltd's plasma-derived therapies have seen rapid growth and illustrate its market leading position. Its bio range of vaccines and anti-venoms remain unrivalled and its operations in the key US and European markets continue to attract high levels of expertise and investment.

From a fundamental point of view, there are three key reasons CSL continues to be a stock of choice:

  1. EPS growth over the past six years has averaged 21%; the consensus estimates sees CSL growing at a rate of 16% in FY15 and FY16. On current updates, an upside surprise in February is likely.
  2. The company’s growth profile remains a core belief of management and therefore funding for organic growth comes from spending 6% of revenue in its research and development divisions. The results being produced from this division are highly encouraging, particularly developments in the Immune Globulin (IG) subcutaneous liquids, which are progressing well in the US and European markets.
  3. I see scale and product innovation, coupled with very measured and conservative capital management, as key drivers for CSL’s value going forward. This remains the key reason we like CSL’s strategy.

The dilemma with CSL is the run up of the past six months – the company has added 33% to its stock price since August, which sees its price to book now standing at well over 2.5 times. It is expensive.

However, I would let profits run, as the trade looks unlikely to slow over the coming weeks as we head into first half numbers and the AUD may continue to slide. It remains the most conservative option for exposure to the USD and US economy.

I think CSL is the core healthcare and USD play stock for 2015.

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