Welcome to Ask the analyst, where I put questions from myself and Morningstar readers to our equity research team. Today’s edition dives a bit deeper into CSL’s big announcements during ASX earnings season.

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Going into August, CSL (CSL) was the ASX’s third largest company by market value. The shares hadn’t had a great 2025 to that point – down almost 4% compared to a 7% gain from the ASX200 to July 31 – but things were about to get worse.

On Tuesday, the company provided one of the most ‘content rich’ updates to the market that you could imagine. Alongside the results themselves, CSL announced 3000 job cuts, the spin-off of its vaccine business, a $750 million share buyback, and more.

Investors spat out the shares, sending them down 17% by the close on results day. Of the major ASX companies, this easily makes CSL one of the biggest casualties of reporting season so far.

Why did the shares sell off so much?

I am no market sensei, but the magnitude of the sell-off surprised me.

I remember hearing some notable investors at the Morningstar conference in May express their view that CSL had lost focus on its core. I would have thought, then, that spinning off one of its non-core businesses might have gone down well.

Also, $750 million isn’t a huge buyback in the scheme of a $100 billion market cap company, but it isn’t usually seen as bad news. What about CSL’s update did markets hate so much, then?

Shane thinks the sell-off was largely due to CSL’s soft revenue guidance of just 5% for fiscal 2026. With significant planned staff cuts, he says the market is also questioning whether CSL can execute on restructuring without revenue growth slowing even further.

Are markets underestimating CSL’s core business?

The issue markets have, then, seems to be mostly with CSL’s core blood plasma business that delivered 70% of its operating profits in fiscal 2025. I asked Shane if there is anything that he thinks markets might be missing here.

While the cut to 5% revenue growth did surprise Shane to the downside, he thinks that markets are underestimating the profit margin benefits set to flow through from CSL’s major efficiency initiatives.

Major efficiency gains are enabling faster, higher-volume donor collections, which have allowed CSL to save costs and close collection centres.

One tailwind here has been the Rika plasma collection system, which was developed by the Japanese firm Terumo and CSL has exclusive rights to. This machine makes donations 30% faster on average versus the previous standard.

Not only that, Terumo and CSL’s iNomi platform arrives at a safe amount of plasma to take from each donor individually – as opposed to taking the same amount from everybody. This has increased the average plasma donation by 10%.

As CSL completed rolling out Rika and iNomi across its network in June 2025, it is enjoying faster and larger collections. But as there is a lag of up to a year between plasma collections and sales, Shane says the full benefits aren’t showing yet.

Management reiterated its expectation for plasma gross margins to recover by 600 basis points from the 51% achieved in fiscal 2025. A lift to pre-pandemic levels of 57% on $11 billion plus of sales could deliver strong earnings growth, even if revenue growth slips.

These efficiency gains have also allowed CSL to press on with reducing its number of collection centres by 7%. Shane says that the fixed costs saved by doing this can be used to fuel further innovation and fund shareholder returns through buybacks.

What about the Seqirus spin-off?

The other bombshell from CSL was that it plans to demerge Seqirus, the world’s second biggest seller of flu vaccines, into a newly listed company by the end of fiscal 2026. My first question for Shane on this was simple – how much might Seqirus be worth?

Shane says that it makes up around $35 per share, or roughly 15% of his CSL valuation today. His base assumptions for this segment are an average of 2% sales growth over the next five years with some margin improvement from manufacturing improvements.

Sentiment towards vaccine firms has been hit recently by RFK’s vaccine hesitancy and immunisation rates falling from the ultra-high levels seen during Covid. However, Shane thinks the flu vaccine market’s outlook looks a lot better from here.

For one, one doesn’t expect healthcare practitioners or regulators to scale back flu jab recommendations given strong data supporting their efficacy. He also points to US flu hospitalisations pushing 15-year highs as another potential boost to demand.

Seqirus is also preparing launches in new geographies and is approaching 20% market share in the fast-growing paediatric market. Shane thinks the firm’s R&D prowess and scale advantages would warrant a Narrow Moat rating.

My takeaway from all of this? Seqirus could be an interesting share to look at in the future. Especially if some of the factors mentioned by Joel Greenblatt in his book You Can Be A Stock Market Genius depress the shares following their spin-off.

In case you haven’t read it, Greenblatt famously hunted for spin-offs where a non-core subsidiary was divested by a much larger parent company, potentially leading to indiscriminate selling by holders.

Could Vifor be next?

As for the strategy behind the Seqirus spin, Shane is in favour of CSL doing what it can to focus more on the core plasma business. My next question then – could its iron deficiency and kidney failure business Vifor be next?

Shane thinks this is unlikely. Vifor has been something of a problem child since its acquisition in 2022, but it turned in a rather good year for CSL in fiscal 2025. Shane said it had the best top-line sales growth of any segment with 8% and solid margin expansion.

Vifor’s higher-margin kidney disease treatments are continuing to win share, and the odds of Vifor’s products being used to treat a broader range of patients and conditions seem pretty good. All in all, he thinks management will want to hold onto it.

Down but not out?

CSL’s earning season beating has pushed the shares to depths not seen since 2019. While Shane cut his Fair Value estimate by 6% on the weaker revenue guidance, he still thinks the shares are worth a lot more than recent market prices.

Shane thinks CSL is worth $305 per share, or almost 40% more than Friday August 22’s closing price of around $220. At that price, the shares had a Star Rating of four.

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Terms used in this article

Star Rating:Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.