Goldman Sachs has initiated coverage on CSL, the Australian global biopharmaceutical company, with a “Buy” rating and a 12-month price target of A$325.4. This implies a 17% upside from current levels. While CSL has faced its share of challenges over the past five years, including rising plasma collection costs, competition from a new entrant in its core Immunoglobulin (IG) market, and setbacks in late-stage R&D, Goldman Sachs believes the company is well-positioned for growth in the coming years.
Strong IG Growth and Competitive Advantages
A major driver behind Goldman Sachs’ optimistic outlook is CSL’s expected double-digit growth in its IG franchise, with an anticipated compound annual growth rate (CAGR) of 12.6% from FY23 to FY28. The analysts cite several factors supporting this growth, including the relatively low penetration of IG treatments in certain indications, such as Chronic Inflammatory Demyelinating Polyneuropathy (CIDP), as well as CSL’s expected market share gains of around 100 basis points per year.
CSL’s competitive advantages, particularly its leading position in plasma fractionation, are also highlighted as key strengths. With the expansion of fractionation capacity, CSL is poised to enhance its cost profile and improve supply reliability, which could drive even greater growth in its IG business.
Margin Recovery and Plasma Collection Cost Declines
Another positive takeaway from the Goldman Sachs note is the projected recovery in CSL’s gross margin, with plasma collection costs per liter expected to decrease significantly—down by 14.6% by FY26 compared to FY24 levels. This reduction in plasma collection costs will play a crucial role in boosting profitability as CSL continues to navigate inflationary pressures.
Seqirus: A Rebound in Growth
Goldman Sachs also sees potential in CSL’s Seqirus division, which has faced challenges in recent years due to depressed US influenza vaccination rates. However, with a rebound in flu vaccination demand expected, particularly in the US, Seqirus is set to benefit from improved growth in the coming years.
Forecasts Ahead of Consensus
Goldman Sachs’ forecasts for CSL’s Gross Profit in FY25/26/27 are 2.8%, 4.0%, and 4.6% above the Visible Alpha consensus, respectively. While their earnings per share (EPS) estimates are broadly in line with consensus, the firm expects CSL to reinvest a significant portion of its profits into operating costs to drive future growth.
Price Target and Risks
Goldman Sachs’ A$325.4 price target is derived from a 50/50 blend of discounted cash flow (DCF) and EV/EBIT multiples. The analysts use a weighted average cost of capital (WACC) of 8.1% and a terminal growth rate (TGR) of 3.0%.
However, as with any investment, there are risks to consider. Goldman Sachs notes that CSL’s business could be impacted by factors such as US inflation affecting plasma donor fees, the successful launch of human recombinant albumin in China, and potential market share loss in the IG market due to the launch of new therapies.
Conclusion
While CSL has faced significant hurdles in recent years, Goldman Sachs sees a strong growth trajectory ahead, driven by expansion in its IG franchise, margin recovery, and a rebound in Seqirus’ growth. With a solid 17% upside to the target price, CSL appears to be positioned for a promising future. However, investors should keep an eye on key risks that could impact the company’s performance.
