Why analysts are betting on a lift in the CSL share price?

Posted: 15 December 2021 1:24 pm
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Shares in biotech giant CSL are up just 2% over the last 12 months with analyst expecting more.

Shares in CSL (ASX: CSL) are currently in a trading halt as the biotech giant finalises a fundraising.

But despite gains nearly stalling over the past 12 months, analysts are already betting that Australia’s priciest stock still has further to go.

CSL shares last closed at $297.27.

Why is the CSL stock price in the spotlight?

CSL shares were placed in a trading halt on Tuesday after the company confirmed a $16.4 billion bid for Switzerland-based Vifor Pharma (SWX: VIFN). CSL has already secured backing for its US$179.25 a share offer from Vifor’s board and its large shareholders.

CSL is funding the purchase through up to $8.4 billion in new debt, and an equity raising of $6.3 billion – the country’s largest follow-on equity raising, which includes a $750 million share purchase plan for existing investors.

Media reports indicate the placement has already been covered at the lower end of the $273 to $285 per share price range.

Even if it gets covered at the top end, the stock will see a small dip when it reopens for trading on Thursday, to account for the share dilution and lower issue price.

But beyond the initial stumble, investors do expect the deal to transform CSL into a global pharmaceuticals giant.

Vifor is a global leader in iron deficiency therapies and also focuses on nephrology, cardiology and rare diseases.

That would help diversify the product portfolio for CSL, which is the world's largest maker of blood plasma treatments and currently gets more than three-fourths of its revenue from the segment.

“Vifor Pharma will also expand our presence in the rapidly growing nephrology market, while giving us the opportunity to leverage our complementary scientific expertise,” CSL chief executive Paul Perreault said.

Analysts optimistic

CSL says the merger is expected to be immediately earnings per share accretive and will retain its balance sheet strength, while offering a clear path to long-term sustainable growth.

The deal is already impressing analysts, with brokerage Jefferies lifting its price target on CSL to $343.70 from $338 earlier while maintaining a "Buy" rating, and Citi raising its price target to $340 from $325 while upgrading its rating to "Buy" from "Neutral".

According to Refinitiv Eikon data, 7 of 12 analysts now rate the CSL stock "Buy", while 5 have a "Hold", with the median price target of $327.85, indicating significant upside from current levels.

Both brokerages expect CSL's return on invested capital – a key profitability ratio for shareholders – to decline in FY23.

Jefferies said earnings per share is likely to decrease 4.7% in FY22 and then increase 1.5% in FY23.

However, analysts from both Jefferies and Citi expect CSL's purchase of Vifor Pharma will be a success given the Australian company’s good track record with integrating acquisitions.

Its previous major acquisitions include the Novartis flu vaccine business and Aventis Behring.

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