Why is the CSL share price under pressure?

Posted: 28 September 2021 1:56 pm
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CSL retracts, after growing 25% in just 6 months.

Biotech giant CSL (ASX: CSL) has long been the most expensive stock on the ASX in terms of absolute price, so it is unusual to see a sharp movement in its shares. But the stock is topping the list of the biggest losers on Tuesday, and was down 3.3% to 296.27 at the time of writing.

Why is the CSL stock price slipping back?

Part of the recent gains in CSL can be attributed to the broader lift in healthcare stocks globally helped by the rapid rollout of the coronavirus vaccines and rising revenue because of the increasing focus on healthcare. In line with other global pharma stocks, CSL shares have lifted around 25% in the last 6 months.

However, the "defensive" healthcare sector is now being caught up in the turmoil of rising bond yields in global markets. US Treasury yields bounced higher overnight, continuing their upward momentum from last week as the Federal Reserve moved closer to easing off its pandemic-era policies.

Basically, investors are betting on rising inflation as economies open up, leading to bond prices falling and yields rising. This lessens the appeal of stocks, particularly those with steady and safe earnings such as healthcare companies.

CSL shares are now down nearly 5% in the last 3 sessions and some of this is on account of investors booking profits after the recent run up that saw the stock hit a high of $312.99 earlier this month.

Focus on margins

But the CSL stock has also been in the spotlight for reasons specific to the company.

Plasma products are the key revenue driver for the biotech business, with its Behring business generating over US$8 billion in revenue in FY21. However, elevated plasma collection costs are expected to weigh on CSL in the near term, which will affect gross margins at CSL Behring.

Analysts believe plasma collection headwinds will continue through FY 2022.

Meanwhile, CSL has seen lower than expected take up of the AstraZeneca COVID-19 vaccine, which it manufactures in the country, after Australia’s top advisory body on immunisation changed its recommendations on its use a number of times.

The company is also stepping up its investment in research and development, in particular to accelerate research into mRNA vaccines, the same technology used in the Pfizer and Moderna COVID jabs, with the intent to manufacture them in Australia.

CSL spent US$1 billion on research and development in 2021 and this number is set to increase, with the business setting a spending target of 10-11% of annual revenue.

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