CSL’s latest result suggests the worst may be over
Relief replaces disappointment but can growth return?
Mentioned: CSL Ltd (CSL)
CSL’s (ASX:CSL) earnings result was not particularly impressive on the surface. Underlying earnings fell 2%, while a USD 7.1 billion impairment charge pushed statutory earnings into the red.
Despite these shortcomings, CSL shares rallied 17% on the day and roughly 50% over the past month. The market’s reaction says less about what CSL achieved and more about how far expectations have fallen.
The key question now is whether the latest earnings results mark the beginning of a share price recovery for the Aussie healthcare giant.
Lowering the bar
Over the past two years, CSL’s share price has fallen 45% from the peaks seen in July 2024. At that time, strong demand for immunoglobulin therapies, combined with expanding plasma collections, supported double-digit earnings growth. The irony of CSL’s subsequent share price collapse is that demand for its most important products has remained relatively resilient.
The subsequent earnings results led to a marked deterioration in investor sentiment. At the core, investors lost confidence in CSL’s growth narrative. This related to the company’s plasma margins, operational execution and profitability rather than a severe collapse in underlying demand. As the largest healthcare company on the ASX, CSL has weighed heavily on the broader Australian healthcare index as seen below.
Repeated earnings misses and downgrades effectively lowered the bar for investor expectations, particularly around CSL’s hallmark double-digit earnings growth that investors had become accustomed to.
The market reaction from the August result reaffirms that investors were more focused on the risk of further downgrades rather than headline earnings figures. CSL met guidance and reaffirmed its 2027 earnings growth of around 5%, enough to spark a strong rally.
Importantly, management’s fiscal 2027 guidance appears achievable. It assumes immunoglobulin sales growth broadly in line with the market and a recovery in plasma margins that recaptures much of the ground lost during 2026. While hardly a return to the growth rates investors once expected, it does point towards calmer seas ahead.
The August result also reinforced an important distinction. CSL’s long-term investment case is still overwhelmingly driven by plasma therapies.
Why plasma remains key
CSL is one of three global Tier 1 plasma companies, alongside Takeda and Grifols who combine for an estimated 80% of total market share. The company collects blood plasma from millions of donors (predominantly in the US) and processes it into specialised, lifesaving medicines for patients with serious immune disorders and rare diseases.
Through its Seqirus business, it is also one of the world’s largest influenza vaccine manufacturers. CSL also recently acquired Vifor, adding therapies targeting kidney disease, iron deficiency and rare disorders, although this business represents only 10% of total earnings.
Plasma collection requires substantial scale, specialised expertise and enormous investment through R&D. The long lead times for plasma fractionation (splitting plasma into specific products) create significant barriers to entry for competitors. Those advantages underpin our narrow moat rating for CSL.
The company’s most important product category under the plasma arm is immunoglobulins. These therapies are used to treat immune disorders and several autoimmune diseases. In our valuation, we assume immunoglobulin revenue compounds at around 5% annually over the next decade. This growth assumption has fallen from 9% in August 2024, reflecting the headwinds CSL faces in this space.
Ultimately, CSL’s long-term value creation will depend on CSL Behring’s ability to grow earnings from plasma-derived therapies.
Can CSL return to its former growth rates?
Perhaps the biggest debate surrounding CSL is whether investors should still view it as a high growth healthcare company.
Only a few years ago management was confident CSL could generate double digit earnings growth over the medium term. Expectations have since been dramatically scaled back, with new guidance implying mid-single digit earnings growth (around 5%).
Our equity analyst Lochlan Hollaway reaffirmed after the result that CSL can recover some of this former momentum. As one of the industry’s lowest cost operators, CSL has multiple levers available to improve margins. Faster donation times, higher plasma yields and an improved product mix could all support stronger profitability.
Is CSL now fairly valued?
The recent share price run has pushed the stock above its fair value for the first time since 2021. From the chart below, it is evident CSL has faced a prolonged period of underperformance, driving a series of fair value downgrades particularly in 2026.
We continue to value CSL at $165 per share, despite the strong run in the share price. The result had little to no changes to the overall view of the business, with more weight being placed on CSL delivering on profitability over the medium to long term.
Looking ahead, our valuation assumes CSL will drive revenue growth of around 4% annually over the next five years while operating margins remain broadly stable. Those assumptions reflect CSL hitting its straps through growth in immunoglobulins, stabilising market share and efficiency signals across its yield initiatives in plasma collection.
While shares now look fairly priced, Lochlan notes there is further upside if CSL can deliver anything like the growth it once considered achievable. The upside lies within improving efficiency across its plasma network. Management is already reducing donor collection costs, closing underperforming centres and increasing plasma yields. Cost per litre is already trending lower as those initiatives take effect.
Wrap up
CSL’s latest result was notable less for what the company achieved and more for what it avoided.
After a couple years of disappointing earnings updates, investors found some reprieve in the company meeting expectations. More importantly, the result suggests the core plasma business may be finally turning the corner.
The challenge now for CSL is shifting from stabilisation back to growth. For long-term investors, the investment case remains largely intact, supported by CSL’s scale, research capabilities and strong competitive position. The question is whether the company can leverage those advantages to re-establish the stronger growth profile that once defined the Aussie business.
