Why did Macquarie just downgrade CSL shares?
CSL Ltd (ASX: CSL) shares are having a poor start to the week.
In afternoon trade, the biotechnology giant's shares are down 1.5% to $180.99.
Why are CSL shares falling?
There are a couple of reasons why investors have been selling down the company's shares today.
The first is broad market weakness following a selloff on Wall Street on Friday night. This has led to the ASX 200 index dropping 0.6% today.
Also putting pressure on CSL shares today has been the release of a broker note out of Macquarie Group Ltd (ASX: MQG) this morning.
According to the note, the broker has downgraded the company's shares to a neutral rating (from buy) with a heavily reduced price target of $188.00 (from $275.20). This is only modestly ahead of where its shares currently trade.
Why the downgrade?
Macquarie made the move on the belief that CSL's shares are going to remain being valued at levels that implies that the company is now out of its growth stage. This is being driven by competing therapies that are under development, structural changes in China, and US vaccination rates. It explains:
CSL's share price has close to halved since COVID. Recent R&D disappointments (eg, Kcentra), structural changes (eg, China albumin) and multiple downgrades have painted CSL as ex-growth. The core Behring franchise has also been threatened, starting with FcRn antagonists, and now complement inhibitors. US vaccinations continue to decline, proving risk beyond FY26E.
We estimate 25% of CSL's IG share in CIDP is at risk, which could result in a 4% EPS impact by FY33. While this impact is modest, positive Phase 3 trials would add to the market's concern that CSL is ex-growth, and that earnings should be capitalised at a lower multiple. This is yet to be captured in our forecasts.
In addition, the broker fears that CSL could yet fall short of its revised guidance in FY 2026, putting further pressure on its shares. It adds:
We see risk to FY26 guidance with 2H reliant on containing China's albumin impacts. CSL plans to expand its China footprint, strengthen retail partnerships and drive demand generation. However, we see this structural shift unlikely to be resolved in 2H with competitors expecting impacts to sustain.
Macquarie then concludes:
With the risk of share losses from CIs in CIDP, we downgrade CSL to Neutral (from Outperform). We also see risks to FY26 guidance, given it is in the second half club, noting significant headwinds in 1H26.
Our TP declines -32% from A$275.20 to A$188.00 reflecting a shift away from DCF valuation (~A$228) given uncertainty in CSL's longterm earnings profits and towards PE valuation based on a basket of comps with similar EPS growth (~$175).
The post Why did Macquarie just downgrade CSL shares? appeared first on The Motley Fool Australia.
Motley Fool contributor James Mickleboro has positions in CSL. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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