CSL crashes to six-year low after slashing FY26-28 growth outlook. Here's what you need to know
The biotech giant has downgraded FY26 guidance and flagged medium-term headwinds, triggering its second massive selloff since August.
Source: iStock
Mentioned
KEY POINTS
- CSL cut FY26 revenue growth guidance to 2-3% from 4-5% and NPATA growth to 4-7% from 7-10%, well below consensus expectations of 7.8%, with FY27-28 growth now expected at high single digits versus prior consensus of 11-12%.
- US vaccination rates are expected to decline 12% for the overall population and 14% for the 65+ age group based on insurance claims data, creating structural headwinds for the Seqirus vaccines business.
- The stock is down 36% year-to-date and trading at May 2019 levels despite analysts maintaining Buy ratings, as two material downgrades in 10 weeks have destroyed confidence in what was once the market's most reliable defensive stock.
CSL (ASX: CSL) is now set to record two of its worst single-day selloffs in just over two months. The stock tumbled 16% in early trade on Tuesday after management downgraded its FY26 guidance and flagged further earnings headwinds over the next three years.
This follows a record 16.8% plunge on 19 August after delivering a mixed FY25 result and disappointing guidance. That marked its largest one-day drop since listing in 1994, far exceeding the declines seen during the pandemic, GFC, and previous earnings misses.
Growth outlook cut for FY26-28
The guidance update contained three major downgrades:
FY26 revenue guidance reduced to 2-3% from prior 4-5% (provided at FY25 result)
FY26 constant currency NPATA growth lowered to 4-7% from prior 7-10%
FY27-28 NPATA growth expectations cut to "high single digits" due to uncertainty in US vaccination rates
For context, consensus FY26 NPATA growth was tracking 7.8%, while FY27 and FY28 were expected to deliver 11-12%. This represents a substantial cut against already lowered expectations following the FY25 result.
"While management's tempered growth outlook is somewhat understandable given it has been mostly attributable to weakness in the influenza vaccine market, we nonetheless expect the stock to underperform the market today on the weaker than expected growth outlook," said RBC Capital Markets analyst Craig Wong-Pan. "Based on insurance claims data to date, the company expects US vaccination rates to decline by 12% for the overall population and 14% for the 65+ age group."
Revisiting the FY25 result
What's striking is the timing. This downgrade comes just 10 weeks after CSL's FY25 result, which was relatively in line with market expectations, though UBS described it as a "low quality NPAT beat, driven by Seqirus sales plus lower R&D and tax."
Revenue up 5% to $15.6bn vs. $15.8bn estimates (1.0% miss)
NPAT up 17% to $3.0bn vs. $2.96bn estimates (1.0% beat)
NPATA EPS up 10% to $6.65 vs. $6.55 estimates (2.0% beat)
Final dividend up 12% to $1.62, total dividend up 11% to $2.92 vs. $2.96 estimates (1% miss)
The result was widely regarded as "messy" given plans to demerge its Seqirus business into a separate ASX-listed entity, alongside a multi-year on-market buyback of $750 million and plans to cut 15% of net headcount.
The main catalyst behind the brutal 16% selloff on results day was the FY26 guidance, which outlined group revenue growth of 4-5% versus Citi estimates of 7.3%, and NPATA growth of 7-10% to $3.45-3.55bn versus Citi estimates of 15.5%.
Where to from here?
CSL is now down 36% year-to-date and trading at levels not seen since May 2019.
CSL price chart (Source: TradingView)
Over the next day, expect analysts to lower price targets while retaining Buy ratings. This is exactly how things played out after the FY25 result:
Goldman Sachs retained Buy, lowered target from $333.60 to $311.00.
JPMorgan retained Overweight, lowered target from $305.00 to $282.00
Jarden retained Overweight, lowered target from $313.12 to $298.13
RBC retained Sector Perform, lowered target from $283.00 to $280.00
UBS retained Buy, lowered target from $310.00 to $300.00
The reason why analysts seem to always remain Buy-rated on CSL is that on paper, the company continues to grow at a reasonable pace while trading at a significant discount to its historical PE multiple and an undemanding valuation relative to the broader market and peers. Fundamentally, it does not make sense to be anything other than optimistic/buy-rated on the stock.
In reality though, material earnings downgrades tend to pressure share prices for days, if not weeks. Following CSL's FY25 result, the stock continued trending lower for four weeks, falling as much as 12.8% before bottoming around $195 on 26 September.
CSL is now trading in no man's land. It's grossly oversold, but for good reason after flagging two material earnings downgrades in quick succession. While it's easy to view CSL as a defensive and reliable grower, perhaps it's better to see it as a shell of its former self with a poor recent track record of restoring confidence.
