Top broker thinks CSL share price could hit $251

As recession fears ensnare global markets and the ASX stumbles, bullishness around an infinitely expanding market seems to have grown somewhat quiet.

Yet pockets of optimism remain, with Morgan Stanley today hitting CSL – the A$107 billion biotech giant – with a lofty price target of A$251 per share and an ‘overweight’ rating.

In response, the CSL share price rose strongly, gaining as much as 3.18% by the afternoon session.

CSL share price: are there gains still to be made?

At the core of Morgan Stanley’s ratings upgrade is the belief that CSL is well-positioned to capitalise on a potentially stronger than expected demand for Immunoglobulin (IG).

Centrally, the investment bank believes that industry distribution data does not adequately reflect IG demand. CSL however, says Morgan Stanley, is well placed to fill this demand after the biotech giant reported an increase in finished goods within inventory in FY19.

With this in mind, the investment bank has upgraded its revenue estimates from CSL’s IG portfolio in FY20e, FY21e and FY22e – by 4%, 14% and 14%, respectively.

Is CSL’s valuation justified?

In short, yes.

For some time now, a persistent theme of the CSL share price has been its valuation.

Indeed, compared to historical levels and the current market, CSL does trade at a premium – commanding a price-to-earnings (PE) ratio of 37, according to the ASX.

Yet Morgan Stanley believes such an elevated valuation is justified for three core reasons.

One, there are few large-caps in Australia with a comparable growth story/ profile. Two, the investment bank cites CSL’s strong return on equity (ROE) as a standout strength of the company. And three, Morgan Stanley also believes that CSL’s low gearing is a key strength.

A growing trend

Such optimism over CSL's prospects is not wholly new mind you. Just last month, ST Wong – Chief Investment Officer of Prime Value Asset Management – was asked by the AFR whether he thought CSL shares could hit the elusive A$250 mark.

His response was short and concise: ‘I think CSL has a very good chance of breaking the $250 mark.’

On this thesis, he added that:

‘CSL’s improved market position comes at a time when product demand is strong and competitors are somewhat constrained to keep pace with supply.’

What’s coming next?

Finally, Morgan Stanley sees CSL’s AGM – set to be held October 16 – as a potential share price catalyst. Here, the investment bank is of the opinion that CSL will reiterate its previous NPAT guidance.

Year-to-date, the CSL share price has now gained around 27%, outperforming the ASX 200 index by a modest margin.