Morgan Stanley analysts say CSL Limited (ASX : CSL) shares could top $350 if their bull case for the company eventuates. Currently trading at over $280, shares in CSL are up nearly 50% since a year ago.
CSL's market capitalisation
At $350 a share, the market capitalisation of CSL (currently more than $127 billion) would be higher than that of the Commonwealth Bank of Australia (ASX: CBA), which has a market capitalisation of nearly $143 billion. According to The Australian, Morgan Stanley predicts that a scarcity of growth in the large-cap sector of the ASX will help push CSL's price higher.
The bull case
"Given CSL's superior ASX relative size, liquidity and growth . . . The market will continue to price delivery of bull case scenarios and longer-term disruption risk will be ignored," Morgan Stanley said in a note to clients.
The broker has increased the weighting of its bull case from 40% to 45% and reduced the weighting of its bear case from 10% to 5%.
Morgan Stanley's bull case assumes trials in CSL's heart attack therapy (CSL 112) go to plan, its haemophilia medicines reach US$1 billion in revenue a year, its HAE franchise reaches US$1 billion in revenue, and efficiency gains of US$70 million a year are realised in plasma centres. The broker has lifted its price target to $290 and remains overweight due to near-term momentum.
Earnings growth
According to The Australian, Morgan Stanley expects a 3-year earnings per share compound annual growth rate of around 13% for CSL. Strong immunoglobulin growth and lower flu returns are predicted to contribute to 2020 net profit at the top end of guidance. Three-year earnings per share compound growth rates are expected to be 11% for the Australian healthcare sector and 3% for the ASX 200.
A second opinion
Goldman Sachs also has a buy rating on CSL with a price target of $312. CSL has a number of projects in the R&D pipeline the value of which is the subject of a wide range of estimates across the market. Goldman Sachs notes that the only asset for which comprehensive Phase 2 data is available is for CSL 112, and assigns this asset a 10% probability of success. If Phase 3 trials are successful Goldman Sachs expects CSL 112 to launch in FY24 and reach peak penetration in FY32.
Foolish takeaway
CSL is now the second largest company by market capitalisation on the ASX and its growth shows few signs of slowing. With a variety of projects in active development and earnings per share predicted to grow at 4 times the rate of the ASX, CSL remains a standout.
