CSL possible pull back to low $200's, page-366

The share price of CSL (ASX:CSL) peaked at AUD 342.75 in February of last year. Its price hit a COVID-19 panic low of 242.67 and subsequently it has been stuck in a range between 260 on the low side and 330 on the up side. Recently the share price has broken below this lower range, and on the weekly chart, this has been accompanied by reasonable volume. I am no technical analyst, but this may suggest a buying point for longer term holders may be on its way.

During this period CSL released its interim financial report. The company grew top line sales and net profit by 18% and 45% respectively. Diluted EPS increased by 45% from the pcp. The companies balance sheet remains in solid shape, with Long Term Debt to Equity falling from 88% to 70%. Free Cash Flow was 1.8 billion versus 600 million for the pcp. Important comments on outlook by management included: "The COVID-19 pandemic continues to present a challenge for the plasma industry in many ways including the ability to collect plasma." "To address the lower plasma collection rates and reduce the impact, CSL has implemented a number of initiatives to increase plasma collections including opening new plasma collections centres, adopting new technology and enhanced marketing initiatives." This is a problem, as plasma is an essential raw material used in the production of many CSL therapies.

Therein is one reason for the share price decline i.e. continuing issues with supply of plasma. However there are other reasons. This include the strengthening of the Australian dollar versus the US dollar (CSL is Australian based but earns the vast amount of its monies in USD). Secondly, the rising global government bond yields. All risk investments are benchmarked to government bond yields, like for example the US government 10 year bond yield. Today that yield is 1.55%. All risk assets (shares, property, art...) should be worth less, when you can get a risk free return of 1.55% (as compared to a one year low in July of 0.54%). Finally, but I think most importantly, CSL was overvalued (this may be an understatement). In April of 2020, when I sold a small fraction of my position, CSL was trading at a trailing PE (the share price divided by the combined EPS of the last two halves) of 45 and a PE based on FY 2019 of 52. Compare those numbers to the 10 year historical PE of CSL (see image above from Bell Direct). This has ranged from 19 to 32 (if you exclude the highest and lowest PEs).

I believe predicting the AUD:USD exchange is a "mugs game". Additionally, I believe the concern regarding plasma supply will be a short term problem. The rising government bond yields are a concern for all risk assets, not just investors in CSL. The pundits believe the Federal Reserve will again come to the rescue, with further "unlimited" bond buying (buying bonds, increase their prices and reduce their yields). If they do not or if the bond buying fails to halt the rise in the yield, watch out, as that could be the event that breaks this market.

The current trailing EPS of CSL in AUD is 7.51. If you were to pay 30 times those trailing earnings (a much more sensible price than 45 times), you would pay 225 per share. As I write this on the 6/3/21, CSL closed yesterday at 248.58. If the market breaks because of the rising bond yields, what would you rather have bought CSL at 30 times earnings or "stonks" on the ASX and NASDAQ trading at 30 times and higher of revenues?