doubts over short-term earnings at csl

Hi all

The below article was intriguing i thought. IMO Baxters downgrade in earnings is related to CSL's increased market capture.

We shall see this week how this corrects itself.

P


http://www.theaustralian.com.au/business/opinion/doubts-over-short-term-earnings-at-csl/story-e6frg9lo-1225858790519

Doubts over short-term earnings at CSL

DEFENSIVE stocks are supposedly back in vogue as attention re-focuses on Greece's debt problem and similar woes afflicting that other ancient superpower, Portugal.
Or maybe it's just a case of bored Wall Street traders finding something to obsess about in the absence of any real economic data.

CSL is supposedly a bomb-proof (healthcare) stock, but there's now a question mark over its short-term earnings, following US plasma rival Baxter's profit warning for calendar 2010, which was released last Friday.
Baxter also pared back its forecast for full-year sales growth, from 5-7 per cent to 1-3 per cent.
Interestingly, Baxter cited the poor economy, which suggests that demand for some plasma products is more discretionary than assumed.

Theoretically, ObamaCare is positive because it expands the potential base of patients with an ability to pay. But Baxter estimates the scheme will cost $US80 million ($86.3m), the result of having to provide either rebates to the state, or discounts to accredited healthcare providers.

It's not a well understood aspect of the convoluted US healthcare system and there could be further scares.
CSL shares slumped $2.66 last Friday, and a further $1.45 this morning, taking total losses to a blood-curdling 11 per cent. Whether that makes for a buying opportunity - or a portent of worse to come - depends on whether CSL is taking market-share from Baxter.

Two firms -- Citi and JP Morgan -- are convinced that it's a case of lost market-share rather than poor fundamental conditions, which bodes well for CSL.

Credit Suisse argues CSL has more product diversification (a subcutaneous delivery product, for example) and seemingly stable growth in key products such as albumin and clotting factors.

CSL also has a lower skew to the US, deriving half of its sales there, compared with 70 per cent for Baxter.
On the flip side, Baxter has hinted that it will need to discount to stem market-share losses, which harks back to a savage price war in 2002-03.

In a heartening move, CSL on Friday stuck with its full-year earnings guidance of $970m to $1.07 billion (depending on the exchange rate).

We'll get further evidence when US competitor Talecris, which CSL tried to buy, reports its first-quarter results next month.

Criterion pegged back CSL from a long-term buy to a HOLD at $35.25 on March 24, and we'll stick in this safe territory.
Depending on who you talk to, CSL is either wildly undervalued, or else rashly priced for blue-sky growth, which can't be achieved without a major new product.

In the meantime, CSL has close to $1b burning a hole in its pocket, which is nice (but a drag on earnings).