Why I'd buy this ASX biotechnology company over CSL

To say that CSL Ltd (ASX: CSL) shares have had a volatile 12 months would be an understatement.

The widely-held blood products company's shares plunged as low as $90 at one stage after the company announced huge write downs across two tranches which came to a total of US$7.1 billion.

The company's shareholders suffered through a nervous few months as the company slowly convinced investors it had righted the ship, and fast forward to today and the shares are looking good at $200.39 at the time of writing.

The question for investors, as always, is are the shares now fully priced?

Have CSL shares got ahead of themselves?

What is interesting to me from a valuation perspective is that the shares have risen 28.1% since the full year results announcement on 18 August, with not much in the way of market sensitive news announced during that time.

The company is trading on a relatively undemanding valuation of 18.1 times earnings, but even by its own account it's not expecting great growth this year.

The guidance given in August was for flat revenue with underlying net profit growth of about 5%, probably helped along by the company's cost out program during the year.

Morgan Stanley in a research note published on 3 November used competitor data to get a handle on the immunoglobulin business which is a large revenue driver for CSL, and estimated the company would grow that division 7% in line with industry trends.

The broker has an overweight recommendation on CSL shares, but a price target of $200 indicating that they are currently fully priced.

Exposure to more research-driven growth is attractive

For my money I prefer the potential upside from Telix Pharmaceuticals Ltd (ASX: TLX).

Telix recently upgraded its revenue outlook from US$950-US$970 million to "in excess of US$1 billion", driven by steady demand for its precision medicine portfolio which it expects to grow by 25% in 2026.

The company also has four compounds in late-stage clinical trials assessing their use in detecting or treating prostate cancer, brain cancer and kidney cancer.

UBS analysts who attended the company's recent capital markets day noted in a research report dated 4 November that the company was expecting revenue to hit almost $1.5 billion in 2027.

UBS said Telix had "numerous catalysts ahead" and the broker has a price target of $26 on Telix compared with $13.74 at the time of writing.

While CSL isn't without potential upside from its own research projects, Telix seems much more attractive to me, given it's much easier to move the needle on a market capitalization of $4.65 billion versus $96.9 billion.

The post Why I'd buy this ASX biotechnology company over CSL appeared first on The Motley Fool Australia.

Motley Fool contributor Cameron England has positions in Telix Pharmaceuticals. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and Telix Pharmaceuticals. The Motley Fool Australia has recommended CSL and Telix Pharmaceuticals. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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