Down by a quarter in less than three months, is the CSL (ASX:CSL) share price a buy?

CSL shares have fallen heavily. Could it be a buy?

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Key points
  • CSL shares have fallen quite substantially in the last few months, declining by a quarter
  • It has dropped alongside many of the other ASX growth shares
  • CSL is seeing COVID problems, but is expecting these to lighten over time

The CSL Limited (ASX: CSL) share price has dropped by around 24% since 24 November 2021. Considering how large CSL is, that is a sizeable drop in market capitalisation terms.

Is this a great time to buy shares of the biotechnology company? Or is it now fair value?

A male Avita Medical doctor wearing a white lab coat shrugs his shoulders and holds his hands up in the air looking confused

Image source: Getty Images

What does the company actually do?

You aren't going to see the name CSL at the local shopping centre like you can with Commonwealth Bank of Australia (ASX: CBA), Woolworths Group Ltd (ASX: WOW) or Telstra Corporation Ltd (ASX: TLS).

CSL describes itself as a biotech leader. It operates in more than 35 countries and spends billions of dollars on research and development.

The company has more than 300 plasma collection centres across China, Europe and North America.

CSL's purpose is to help the health of people who have a range of serious and chronic medical conditions. It develops innovative biotherapies and influenza vaccines that save lives, and help people with life-threatening medical conditions live full lives.

What's happening to the CSL share price?

CSL shares are now lower than they were during the COVID-19 crash in 2020.

It has experienced a sizeable decline in the valuation as investor concerns rise regarding the rate of inflation and interest rates. Many other ASX growth shares have also seen sizeable declines including Xero Limited (ASX: XRO), WiseTech Global Ltd (ASX: WTC) and Altium Limited (ASX: ALU).

What is happening to CSL shares is not an isolated incident.

The broker Macquarie says that foot traffic is moderating for a sizeable portion of the plasma collection facilities. CSL said that US stimulus, stay-at-home orders and lockdowns caused FY21 plasma collection volume to be down by 20% compared to FY20. There are also increased collection costs.

The company opened 25 new centres in FY21. It was/is planning to open up to 40 new centres in FY22.

FY22 guidance

CSL is continuing to see demand for its main products, with expectations of strong demand for flu vaccines.

Plasma collection collections are expected to improve with CSL plasma initiatives and the COVID-19 vaccine roll-out.

The gross profit margin is expected to ease after increased plasma collection costs, partially offset by "modest" margin expansion due to growth in differentiated flu vaccines.

FY22 revenue is expected to grow by 2% to 5% at constant currency, whilst net profit after tax (NPAT) is expected to come between US$2.15 billion to US$2.25 billion at constant currency.

Is the CSL share price a buy idea?

Macquarie currently rates the healthcare ASX share as a buy, with a price target of $325. That implies a potential upside of more than 30%.

Based on the broker's estimates, the CSL share price is valued at 38x FY22's estimated earnings and 31x FY23's estimated earnings.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended CSL Ltd. The Motley Fool Australia owns and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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