Top investment bank cuts CSL share price target before FY20 results

When will the company report its FY20 results

CSL is set to report its full-year (FY20) results on Wednesday, 19 August. An investor and analyst briefing will be held on the same day at 11AM – AEST.

A period of uncertainty emerges

The last six months has proven difficult for the high-flying CSL, with its share price coming off a little over 15% in that period.

This comes as the coronavirus puts a strain on the company’s plasma collection operations, though such concerns are not anticipated to impact CSL’s FY20 results, but potentially hurt its FY21 outlook. Specifically, given the six to nine month lag between plasma collection and sale, a number of analysts have noted that while there’s little risk to CSL’s FY20 results, with the company itself in April reaffirming its profit guidance of between US$2,110 million to US$2,170 million, on a constant currency basis – there is risk for 2021 guidance as a result of plasma supply constraints.

Interestingly, while JP Morgan analysts recently noted that plasma collections have recovered from their recent lows, the expectation is that immunoglobulin and album supply will decline in fiscal 2021. The investment bank’s analysts expects CSL to run down its inventories in response.

From a share price perspective, JP Morgan analysts expect only modest price gains from here, retaining their Neutral rating on the stock while lowering their price target from $300 per share to $280 per share.

Moreover, while plasma supply issues are expected to become more apparent in FY21, JP analysts argued that demand for CSL’s flu vaccines will likely prove important in stabilising earnings in FY21 – as governments and the medical community push for higher levels of vaccination. Tellingly, in recent times, instances of the flu have declined in many developed and developing nations – off the back of social distancing measures, lockdowns and higher levels of vaccination.

CSL share price: Beyond plasma collections

Besides issues around plasma collections, CSL faces a potential second threat to its FY21 earnings: namely, a rising Australian Dollar (AUD/USD).

This is an issue, that according to Macquarie Wealth Management, the market is currently overlooking. Macquarie analysts, based on a bullish commodities outlook, believe that the AUD/USD should be trading around $0.75 – though could trade as high as $0.80 should commodities prices appreciate further.

‘Given ASX listed stocks are priced in Australian dollars, we think investors should care more about the lower AUD earnings of offshore companies. We do not think the market is giving enough attention to the potential impact of the stronger AUD on offshore earners.’

‘For any that still provide it, the higher AUD could lead to disappointing guidance,’ Macquarie analysts flagged.

With all of this considered, investors will likely pay close attention to CSL’s earnings guidance when the biotech giant reports if FY20 results next Wednesday.

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