CSL share price rises as top broker issues $295 price target

Financial markets can (and often do) change in an instant.

One big driver of this is information flow: the more the market knows, the more accurately priced financial instruments become, so the theory goes.

The same looks to have happened with CSL, again.

Just a few days ago when we discussed the analyst outlook on the $121bn biotech giant – we noted that the analyst consensus was decisively bullish. We also looked at the specific view of UBS, who had a ‘neutral’ rating and a price target of ‘just’ $265 per share on the stock.

Yet its looks as if UBS is back in the bullish camp: today upgrading CSL to a ‘buy’ and slapping a lofty price target of $295 on the company.

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CSL share price: where next?

Understanding immunoglobulin or IG is a key aspect of understanding CSL’s price movements. On this front, it's worth knowing that IG ‘comes from human plasma and is used to replace the antibodies that are needed to protect them from life-threatening infections,’ notes PrimaryImmune.com.

A central part of CSL’s operations involves collecting plasma to produce and supply IG. Though other companies in the space also do this, CSL pursued a plasma centre expansion agenda well ahead of its competitors; a fact that, according to UBS provides CSL with a distinct advantage, as its peers rush to create a network of plasma collection centres of comparable strength.

This above point forms a core part of UBS’s bull thesis: not only are CSL’s plasma collection centres highly operationally efficient – more so than its competitors – but the IG market is also expected to grow strongly in the near-term, though it is expected to level off in the mid-term.

Specifically, UBS sees IG price increases coming (moving up 100 basis points from the 2020 fiscal year) and demand growing robustly. These favourable price movements are likely to help CSL's margin expansion and earnings growth.

Side notes

One interesting part of UBS’s investment thesis rests on its sensitive valuation: for every 50 basis point price movement of IG, UBS increases their discounted cash flow model on CSL by 8%.

The market looks have responded positively to UBS’s updated outlook, with the CSL share price rising as much as 2.43% – to $267 per share – just before noon.

Bullish broker notes themselves pose an interesting question: Namely, does the market care about the depth and breadth of the research – the new information gleamed from analysts and disseminated into the market?

Or does the market only care that UBS now says BUY?