Chart of the Week: Morningstar’s forecast for CSL’s future
We see gross margin expansion on efficiencies and limited tariff impact.
Mentioned: CSL Ltd (CSL)
This week’s Chart of the Week comes from Morningstar’s Equity Research teams stock pitch document for CSL Ltd (ASX:CSL). The stock pitch is available for Morningstar Investor subscribers.
Part of the analysis includes our analysts’ thoughts on CSL’s future prospects. They believe that markets are skeptical, but they see a clear path to efficiency gains.
Amid plans to demerge the vaccines division, Seqirus, the market is losing hope of a return to prepandemic profitability in the core plasma division, Behring. Pessimism reflects margins that have barely improved over the last three years, given higher collection costs.
The share price of CSL now implies Behring’s gross margins stay flat. Our analysts believe that this is unrealistic, and they forecast a 6% rebound by fiscal 2028. They expect 80% of this uplift from recent efficiency initiatives enables faster and larger collections, including 30% faster donation times and 10% greater collections per donor.
Importantly, they believe that in relation to CSL, tariffs are likely all bark and no bit. US tariffs on pharmaceuticals as high as 250% are overhanging. On our analysts’ assumption that 10% of the group’s cost of goods sold is exposed, a 250% hike would cut our earnings by 30%. This would drop our Fair Value Estimate (FVE) for CSL close to the current share price.
However, they think the ultimate tariff impact will be immaterial. First, in Morningstar’s base case, they think plasma products will be exempt from tariffs due to their vital need and the risk of raising US healthcare costs, or worse, endangering supply. This was already acknowledged when plasma products were excluded from prior US policies. In any case, for plasma tariffs of 15% or more, we’d expect CSL to move manufacturing to the US at a cost of roughly USD 2 billion, reducing our fair value by only 2%.
You’re able to find previous editions of Chart of the Week here.
Mark invested in CSL two years ago. He recently reflected on whether he made the right decision as CSL’s share price falters. We also discussed it in this Investing Compass episode.
You can read our Ask the Analyst on CSL, and whether they think the markets are missing something.
