CSL (ASX: CSL) (OTCQX: CSLLY) shares dropped another 0.8% today. CSL shares have been on a distinct downward trend recently off the back of the company's own forecasts of this year's revenue. The real issue here is that for a company of CSL's size there is no one product or breakthrough that is really going to provide a material result. At $120 billion (in those bijou Australian dollars, perhaps $90 billion in real US ones) in market capitalization it would be extraordinary for the one new product to make much difference. So, it is things like the medical industry in general, basic economic changes, FX rates and so on which are going to make the difference. Macroeconomic factors that is.
Just to bring up to date on the activities of CSL: “CSL Limited researches, develops, manufactures, markets, and distributes biopharmaceutical and allied products in Australia, the United States, Germany, the United Kingdom, Switzerland, China, and internationally. The company operates through two segments, CSL Behring and CSL Seqirus. The CSL Behring segment offers plasma therapies, such as plasma products and recombinants.” And so on. There's nothing wrong with any of that, a lot right. But this just isn't one of those sectors where the one new finding is going to radically change outcomes.
CSL share price chart from ASX
As we can see there's been a distinct decline since June in CSL. “It's now expecting a foreign currency headwind of around US$230 million to US$250 million. This is much higher than the initial US$175 million that was anticipated at the time of half-year result. CSL said that its profit guidance in constant currency exchange terms for FY23 “remains unchanged”, although it's “now skewed to the top end of the range”.”
Constant currency is all very well - it's a decent enough guide to how well the operational management is doing after all. But in the end everything has to be converted into the one currency for reporting and dividend purposes. So, FX rate changes affect, as above - and that's what we're finally interested in. Perhaps Treasury should have hedged a bit more but that's not something that can be done economically for long periods of time.
We've also one more issue here. Which is that the sector - health care - obviously boomed during the pandemic and there was always going to be a slowdown afterwards. Morgan Stanley thinks it will rebound but, well, will it?
The real point we want to make here about CSL is that it is these larger issues which are going to determine the CSL share price. Simply because the company is so large that it is the macroeconomic and sectoral factors which are going to be value determinative.
