CSL Limited (OTCQX:CSLLY) (OTCQX:CMXHF) [CSL:AU] stock is still assigned a Hold investment rating. CSLLY is expected to register a decent low-teens percentage bottom line growth for fiscal year 2025 (YE June 30, 2025), taking into account the positive prospects for the Behring segment. But the company’s Seqirus and Vifor segments are likely to underperform going forward, and this has resulted in a FY 2025 earnings guidance miss. The mixed outlook for CSL Limited’s different business segments supports a Hold rating.
My earlier article written on February 13, 2024 drew attention to the company’s interim 1H FY 2024 financial results. In this update, I touch on CSL Limited’s full-year FY 2024 performance and its FY 2025 guidance.
The company’s shares are traded on the Australian equity market and the Over-The-Counter market. The three-month average daily trading values for CSL Limited’s shares listed on the Australia Securities Exchange and OTC shares were $140 million and $3 million (source: S&P Capital IQ), respectively. Readers can deal in CSL Limited’s Australia-listed shares with US stockbrokers such as Interactive Brokers.
CSL Limited Registered Strong Revenue And Earnings Growth For Fiscal 2024
CSL Limited’s headline revenue and net profit both rose by +11% YoY to $14.80 billion and $2.91 billion, respectively for the most recent fiscal year, according to its FY 2024 results disclosure. The company’s fiscal 2024 earnings growth rate adjusted for foreign exchange effects was an even faster +15% YoY.
CSLLY’s key financial metrics in the latest fiscal year met the market’s expectations. CSL Limited’s FY 2024 top line came in marginally higher (+0.7%) than the consensus revenue forecast of $14.69 million, while its FY 2024 bottom line was just slightly below (-0.3%) the consensus net income projection of $2.92 billion. These consensus numbers were obtained from S&P Capital IQ.
The Behring segment or plasma technologies business was the star for CSL Limited in the recent fiscal year.
Revenue for CSL Limited’s Behring business segment increased significantly by +14% YoY to $10.61 billion for FY 2024. In its earnings presentation slides, CSLLY highlighted the positive “plasma donation growth momentum” and the “continued reduction in CPL (Cost Per Liter)” of plasma as the major factors contributing to this segment’s good performance.
Moving ahead, it is realistic to think that the company’s plasma technologies business or Behring segment will continue to perform well in fiscal 2025 with higher donation yield and lower CPL being key drivers.
At its FY 2024 results briefing, CSL Limited shared that it has “several initiatives” to “manage this (CSL of plasma) down further.” In its earnings presentation, CSLLY also outlined its expectations of an improvement in the “average (plasma) donation yield by ~10%” for FY 2025 with the conclusion of the “US rollout” for the new and more efficient “Rika Plasma Donation System” by end-June 2025. In other words, CSLLY has levers to enhance the donation yield and optimize CPL of plasma, which will boost the plasma technologies business’ future results.
However, CSL Limited’s outlook for the new fiscal year fell short of expectations as detailed in the next section, notwithstanding its robust top line and bottom line expansion for the prior fiscal year.
But Full-Year Fiscal 2025 Guidance Didn’t Live Up To Expectations
The mid-point of CSL Limited’s full-year FY 2025 net income guidance is $3.25 billion, or -4% lower than the sell-side analysts’ consensus bottom line estimate of $3.39 billion (source: S&P Capital IQ). CSLLY’s fiscal 2025 guidance also implies that the management sees its net profit on a constant-currency basis slowing from +15% in the prior fiscal year to +11.5% for the new fiscal year.
The weakness associated with the company’s Seqirus segment or vaccines business and the Vifor segment is likely to be the main reason for the FY 2025 earnings guidance miss. Vifor is a “pharmaceuticals company” with a focus on “Nephrology, Dialysis and Iron Deficiency” which CSL Limited bought over in 2022 as mentioned in my August 22, 2022 article.
The Seqirus segment delivered a modest +4% YoY in revenue to $2.13 billion in fiscal 2024. CSL Limited mentioned in its results announcement that “reduced rates of immunization” had hurt the top line performance of the vaccines business for the previous fiscal year.
A July 25, 2024 Axios commentary piece indicated that “U.S. flu vaccinations administered” have declined by around -9% in the latest 2023/2024 season because of “vaccine fatigue, shifting attitudes and lowered public trust.” As such, it is likely that the future revenue growth for CSL Limited’s Seqirus segment might be slow in view of weak flu vaccine demand.
Separately, CSL Limited acknowledged “the impact of generic competition on Ferinject” at its FY 2024 earnings briefing.
Ferinject is one of the Vifor segment’s key products for the “iron deficiency” category, as outlined on CSLLY’s website. It is worth noting that iron deficiency is a major therapy group, accounting for 49% (source: results presentation slides) of the Vifor segment’s FY 2024 sales.
The YoY FY2023-2024 top line performance comparison for Vifor can’t be done, as Vifor was only acquired in August 2022 while the company’s fiscal 2023 began on July 1, 2022.
But Vifor’s actual FY 2024 sales amounting to $2.06 billion were below the market’s consensus estimate of $2.09 billion (source: S&P Capital IQ). Looking forward, it might be hard for Vifor’s FY 2025 performance to meet the market’s expectations, considering competitive pressures for Ferinject as mentioned above.
In a nutshell, CSL Limited’s constant-currency earnings growth is anticipated to moderate from +15% for FY 2024 to +11.5% in FY 2025, due to the unfavorable outlook for its Seqirus and Vifor segments.
Conclusion
CSL Limited’s current consensus next twelve months’ normalized P/E multiple of 30 times is pretty close to the stock’s seven-year mean forward P/E metric of 32 times (source: S&P Capital IQ). Also, the company is now guiding for a +11.5% bottom line expansion for FY 2025, which is also that far from its historical FY 2017-2024 or seven-year normalized EPS CAGR of +10.7% as per S&P Capital IQ data.
In a nutshell, it is fair that CSL Limited is now trading at a P/E close to historical average, as the company’s expected FY 2025 earnings growth is near its historical CAGR.
The prospects for CSLLY are mixed, considering the positive outlook for the Behring segment and the challenges for the other two business segments. I will consider raising my rating for CSL Limited to a Buy in the future if the prospects for the Vifor and Seqirus segments improve and the company’s overall earnings growth accelerates.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
Read the full article here