"As for those pointing to 5% revenue growth and the current P/E...

"As for those pointing to 5% revenue growth and the current P/E - two comments. One: for P/E surely you should be looking at NPAT(A) growth, not just revenue, and two: take a look at the historical P/E. I've only tracked the financial back to FY16, but this is by far the lowest multiple it's been on for a long time. Nobody likes a "we'll have a big second half" but the share price has had to take a breather while the company grows into its valuation, and the last few months has gone a long way to helping that."

That's the correct take, I believe.

Apart from one or two blinkered cheerleaders of this company (irrespective of its valuation), there is now a preponderance of negative commentary at a time that the valuation multiple is at decade-low.

This is the very opposite of all the gushing sentiment that dominated the conversation five years ago when people were convinced that there was nothing untoward about the then-45x P/E multiple, with many arguing that it was eminently sustainable (and one or two deluded souls even calling for even further expansion in the multiple).

Ergo: Market sentiment is positive at 45x P/E, but negative at a P/E half of that level.
Such is the schizophrenia of the herd.

Of course, one should celebrate the existence of that market schizophrenia because creating wealth from owning publicly-listed securities invariably involves finding and arbitraging such schizophrenia.

In terms of the historical P/E, my spreadsheet goes back to 2005, although I think anything further back than a decade loses meaningfulness and relevance given the changing nature of the business over time in terms of increased scale, operational and product diversity and - more importantly - longer execution track record (warts and all).

Including notional EPS growth assumptions of 9% in FY26 and FY26 (and yes, as you suggest I use EPS based on NPATA, i.e., after adding back amortisation of acquired intangibles to Reported NPAT), the prospective P/E multiple history (derived from share price at mid-point of each financial year on next EPS figure) for CSL looks as follows:



As can be seen, the de-rating of the multiple over the past 5 years has been as spectacular as the upwards re-rating was in the years leading up to the 2020 peak, when it reached nose-bleed level of 45 times. (In fact, at one point during that period it touched an insane 50x for a few days. More insane than that were the people who were trying to justify that insane multiple as being somehow sustainable.)

Also shown in the graph are FY25 and FY26 prospective multiple, namely 24.8x and 23.1x based, as I said, on an assumption of 9% pa EPS growth.

I feel that 9% pa growth assumption figure requires some fleshing out, because I see some commentators glibly assuming 15% for future, medium-term EPS growth.

So let's add a bit of flesh to that EPS growth bone: one of the most valid ways to inform the future is to draw on precedent performance. On that score, CSL's EPS profile is charted below (US$/share represented by dark blue columns and A$ equivalent by light blue, with forecast US$ and A$ EPS in dark and light green columns, respectively):



Additionally, the two years that EPS went backwards are shown in dark and light red columns, namely FY2016 (due to acquisition of the loss-making vaccine business) and FY2022 (due to challenging plasma collection conditions post-Covid which caused a 250 bp GP margin contraction; also, there was a 16% increase in R&D expenditure in that year).

[Note that it is not meaningful to extend this chart further back than 2011, because 2012 was the first year that the company changed from A$ to US$ as its functional reporting currency.]

The relatively nice mild parabolic shape of that EPS plot masks the fact that while EPS has risen inexorably, the rate of that rise is far from constant. As can be seen from the chart below, excluding the to down years, EPS growth has varied from 7% to 30% but that doesn't mean that the average rate is, say, 15% because the 30% figure is an outlier, driven by the one-off opportunity whereby the acquired vaccine business was turned from loss-making to profitable, so a case of cycling weak comparative periods):



So the way to get round this volatility and in order to obtain an estimate of sustainable long-term EPS growth is to calculate rolling EPS growth rates for periods longer than just one year, say 5 years (in line with a sensible and prudent investment time horizon).

If one does that for the historical time frame under review, you get a CAGR figure of around 9.5%pa. Hence the reason I've used 9.0% pa to be modestly conservative. This sort of back test is, I believe, a reasonableness test for claims of much higher growth rates being conceivable in the future: if CSL has managed to grow EPS by an average of 9.5% in the past, any suggestions it is somehow going to grow EPS at a rate 1.5 times faster in the future, are objectively somewhat fanciful.)

Now that we have nailed down a reasonable EPS growth expectation, resulting in FY2025 EPS of US$6.60 (A$10.30 assuming the current exchange rate) and FY2026 EPS of US$6.60 (A$10.30), from which prospective P/Es of 24.8x (FY2025) and 23.1x (FY2026) arise.

Instead of ranking chronologically, a different, perhaps more instructive, way to represent P/E series is using an old-fashioned histogram. Below we have the distribution of CSL's P/E series with the prospective multiples in green (FY2025) and yellow (FY2026). Historical years are shaded dark grey with the pre-2013 years (which I show for data completeness, but which I don't believe are representative) shaded in a lighter grey:


So, if one's brain is able to "ignore" the light grey years, then it is evident that CSL's prospective P/E is now very close to a level where it has spent very little time historically.

Of course, everyone is at liberty to draw their own investment conclusions from all of this; I make no claim to this being the certain catalyst for the stock to have now "bottomed" (buying at the very bottom seemingly being, bizarrely, some kind of Holy Grail around which so many investors seem desperate to finesse, despite it really making very little difference to long-term wealth creation).

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