Csl now cheap relative to CBA

CSL versus CBA

Analysts often compare CBA’s punchy valuation to that of CSL, Australia’s largest biotechnology company.

Just two years ago, blue-chip stocks were equally weighted on the ASX 200. Today CSL accounts for roughly half the weighting of CBA at 5.3 per cent – yet both trade on the same price-to-earnings multiple of around 28 times.

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In other words, for every $1 of earnings in the next 12 months, investors are willing to pay the same entry price for both. It also implies that the two companies have similar growth prospects even though CSL is tipped to grow earnings by more than 10 per cent per year in the next five years, compared to low single digit for CBA.

“It’s counterintuitive,” said Jason Kururangi, a portfolio manager at Milford. “CSL is growing earnings north of double digits over the next few years and its multiple is now lower or similar to CBA.”