Should you buy the CSL dip: Citi and Morgan Stanley

CSL (ASX: CSL) shares are down almost 10% in the last two sessions to a fresh three month low. A selloff of this magnitude is quite rare for the defensive market darling, which may have investors thinking – Should I buy the dip?  

On Wednesday, CSL said FY23 profits should hit the top end of its guidance range (US$2.8 billion) on a constant currency basis but faces a foreign currency headwind of US$230 million to US$250 million, up from US$175 million it expected just five months ago. 

To add further insult to injury, CSL provided its first take on FY24 earnings, with expectations that net profit after tax and amortisation (NPATA) growth of 13-18% or US$2.9 billion to US$3.0 billion. This was below market expectations of US$3.33bn.

The last time CSL experienced a selloff of this magnitude was in December 2021 – When it raised $6.3 billion (at an 8.2% discount) for its acquisition of Vifor Pharma. It took CSL around 7 months to return to pre-selloff levels. 

But does any of this matter when you’re a market darling? Let’s see what the brokers are saying.

Morgan Stanley: Margin Recovery Pushed Forward

Morgan Stanley retained an OVERWEIGHT rating but lowered its target price from $339.0 to $325.0.

“Of our ~9% downgrade to FY24e NPAT, ~50% is foreign exchange and ~50% is slower gross margin recovery – We don’t see change to the long-term picture but rather a 6-12 month delay in getting there,” the analyst said in a note on Wednesday.

“CSL guides plasma gross margins to be back to pre-pandemic levels in FY26-28. We are confident gross margin improves from here given: i) strong reversal in collection volume, ii) softening of donor fees and iii) slower growth in the fixed cost base.”

The broker said CSL is still expected to deliver 13-18% net profit growth and with no change to its long-term picture, remains Overweight on the stock.

Citi: Resets Behring Margin Expectations

Citi reiterated a similar view – That the trading update “was about resetting the market’s expectations for the recovery of gross margins in the Behring division, as both donor fees and labor cost inflation remain higher than anticipated.” This is in contrast to market expectations of a more V-shaped recovery by FY26.

The broker reiterated a BUY rating but lowered its price target from $350.0 to $340.0. 

“Our target price moves to $340 implying CSL should trade on an FY26 PE of ~27x, in-line with the 10-year average,” the analysts said.

CSL 12-month price chart (Source: Market Index)