Why I'd buy this ASX biotechnology company over CSL

Detailed summary

The potential for research-driven growth could be large. The post Why I'd buy this ASX biotechnology company over CSL appeared first on The Motley Fool Australia.

To say that CSL Ltd (ASX: CSL) shares have had a volatile 12 months would be an understatement.

The widely-held blood products company's shares plunged as low as $90 at one stage after the company announced huge write downs across two tranches, which came to a total of US$7.1 billion.

The company's shareholders suffered through a nervous few months as the company slowly convinced investors it had righted the ship, and fast forward to today, and the shares are looking good at $200.39 at the time of writing.

The question for investors, as always, is are the shares now fully priced?

What is interesting to me from a valuation perspective is that the shares have risen 28.1% since the full-year results announcement on 18 August, with not much in the way of market sensitive news announced during that time.

The company is trading on a relatively undemanding valuation of 18.1 times earnings, but even by its own account, it's not expecting great growth this year.

The guidance given in August was for flat revenue with underlying net profit growth of about 5%, probably helped along by the company's cost out program during the year.

Morgan Stanley, in a research note published on 3 November, used competitor data to get a handle on the immunoglobulin business, which is a large revenue driver for CSL, and estimated the company would grow that division 7% in line with industry trends.

The broker has an overweight recommendation on CSL shares, with a price target of $200, indicating that they are currently fully priced.

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