CSL (ASX: CSL) has been one of the best performers on the ASX this year, accounting for ~20% of the last 1,000-point rally in the ASX 200. The company is up 55% in the past 12 months, and recently updated the market on their R&D budget. CSL announced to market that they are trying to develop a new treatment for severe asthma, which would be sold to a target market of 20m people. The company has passed phase 1 trials on this new treatment for Asthma, and it is one of the most promising future treatments under development. With asthma killing 1,000 people a day, the benefits and potential revenue from treating more serious forms of the illness is larger than most people realise. This has supported the rally to $280, and the company may be the first Aussie stock to hit $300/ share.
CSL has rallied over 55% in the past year on the back of successful management and earnings beats
CSL has a strong influenza business that provides a continuous revenue stream, given that the virus mutates and requires new flu vaccines each year. The firm’s competitive advantage is having a world leading research team that can develop new vaccines, get them to market and patent them faster than competitors. This enables the company to get more sales, which produces more research funding and enables the company to continually attract top talent.
The company has maintained its growth record by continually investing in new technology and staying at the forefront of medical innovation. CSL has recently made heavy investments in developing gene therapies, which are widely believed to drive the next wave of medical advancement. They also have a business unit, CSL Behring, that makes specialty biotherapeutics for people with serious medical conditions that are based on blood plasma. This business is more diverse than the CSL’s influenza business, making it a little harder to predict on a year to year basis. This resulted in a result which disappointed the market a couple of months ago, causing a modest selloff and holding the share price down. Nevertheless, most commentators believe that update to be a temporary blip and do not expect the business to have a string of downgrades. The market awards the company a high PEG multiple because it’s a quality business with sustainable competitive advantages, non-cyclical earnings and a competitive moat.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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