Why CSL is stuck

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Why CSL is stuck. Consider ResMed

12 September 2025
Author: Sandstone Insights

The CSL story has lost shine. Management has lost credibility with investors. The company has gone from growth to requiring significant cost out and restructures to maintain the prospects of double digit earnings growth.

Whilst there were some one-off factors impacting the FY25 result, we expect there are some more structural issues which will continue to plague CSL.

CSL’s bio-pharma business is not broken (just bruised). The small on market buyback is a useful signalling tool. But ultimately, we view the current share price as an ‘opportunity cost’ and likely to trade sideways until it can demonstrate some clear improvements in both its operating and earnings rhythm.

Estimates on 1 Jan 2024 for Behring gross profit were ~US$800m higher than where they are now at in mid Sep 2025. There is still significant execution required to return to a higher gross margin in the core blood plasma business.

With CSL only focussing on better priced tender contracts, we view risks to the actual volume growth of its plasma products. The pathway to pre-Covid margins is now much longer and may potentially not ever be reached.

Figure 1: CSL’s slower margin recovery comes at $800m cost of lost earnings

Source: Visible Alpha, Sandstone Insights.

ResMed (RMD) is the preferred pick in the healthcare sector. RMD doing the opposite of CSL, demonstrating accelerating top-line growth and an improvement in margins.

We expect the market is still under appreciating the new demand opportunity from sleep apnea detection wearables becoming the norm.

We expect this can materially lift diagnosis rates, and better customer conversion can lead to higher priced products. RMD has discovered more manufacturing efficiencies with its new and latest devices, driving better gross margins. Better cost control and heightened scale can drive EBIT margins higher than consensus expectations, driving valuation re-rates.

Fears around miracle weight loss drugs have kept a lid on the share price despite clear earnings momentum and no major evidence of major population weight loss, particularly in the US. RMD is highly likely to outperform CSL in our view, over the next 12-24 months.

At an investor day in Sep 2024, RMD outlined it expects “high single digit” revenue growth to FY30. The market is only sitting at ~7%pa. With a targeted focus on growing top-line, just a ~200bps increase in the growth rate would see a ~US$750m uplift in revenue in FY30E.

Couple this with operating leverage improvements from higher volume, we could see consensus EBIT numbers understating FY30 by more than US$500m+.

It’s never nice to sell low, but we back the faster car in RMD to more than offset any losses.

Figure 2: RMD earnings momentum is accelerating. A 2%-point improvement in revenue growth opens up a >$750m revenue opportunity by 2030E, which is not currently captured by market estimates

Source: Visible Alpha, Sandstone Insights.

The data on this page has been provided by an external data vendor and has not been verified by Commonwealth Securities Limited (CommSec). All recommendations, data, calculations and values have been provided for your information only and should not be relied on for financial or any other purposes. CommSec does not accept any responsibility for any losses suffered due to reliance on the data, calculations or values. Past performance is not an indicator of future performance.

Sandstone Insights research methodology

Sandstone Insights’ recommendations of Buy, Hold or Sell, are based on detailed qualitative and quantitative analysis of a company’s income and growth risk profile to derive an estimate of the total return an investor can expect over a 12-month period. We define total return as the share price return plus gross dividend yield and use this analysis to derive our recommendations below:

BUY: Expect the total return to be more than 10% in the 12-month period from the date of recommendation
HOLD: Expect the total return to be between +10% and -5% in the 12-month period from the date of recommendation
SELL: Expect the total return to be more than -5% in the 12-month period from the date of recommendation

Sandstone Insights’ quantitative model utilises historical and forecast consensus data points to determine and classify our recommendation for each security, including:

Forecast changes in earnings or sales over the next 12 months.
The company’s dividend or distribution yield forecast, grossed up for any franking credit benefit a shareholder will receive.
The change in the valuation multiple paid for the stock. The choice of multiple will depend on the nature of the business. We may use PE, EV/EBITDA, EV/Sales, dividend yield or price to book depending on the most suitable measure for the industry and life-stage of the company. We review the multiple and compare it to its three-year average and adjust the suitable multiple depending on our judgement about the quality of the business. Quality factors will include reputation of management, consistency of delivery, visibility of earnings drivers and the dispersion of analyst forecasts.

Sandstone Insights’ recommendations are not static and will be updated as consensus data and analyst forecasts are changed. Accordingly, the income and growth risk profiles for each stock may change over time as the data changes.

Key Properties definition

Sandstone Insights’ model will derive a Key Properties profile based on important factors in assessing a company’s future performance. We consider the level and sustainability of a company’s income, the level of risk and the moat position, or the defensive characteristics of the company. Each of these factors is rated on a scale and explained as follows:

Rating

BUY: Expect the total return to be more than 10% in the 12-month period from the date of recommendation
HOLD: Expect the total return to be between +10% and -5% in the 12-month period from the date of recommendation
SELL: Expect the total return to be more than -5% in the 12-month period from the date of recommendation

Income
1. High sustainable income. A dividend yield above the market average and expected to be sustainable over several years.

2. High income. Dividend yield above market average

3. Dividend yield in line with market average

4. Below market average dividend yield

5. No dividend, no prospect of imminent shareholder payments

Growth
1. High growth business with above average earnings growth and momentum.

2. Growth business with positive earnings growth

3. Earnings growth in line with market expectations

4. Below market earnings growth

5. Declining earnings growth

Risk
1. Low risk business with low operational, regulatory and financial risk

2. Low risk business with below average operational, regulatory or financial risk

3. Average degree of business risk

4. Above average operational, regulatory or financial risk

5. Multiple risk exposures that could be detrimental to the business

Sandstone Insights’ recommendations are of a general nature only and individuals must consider their own specific investment goals, risk tolerance, tax situation, time horizon, income needs, and complete investment portfolio, among other factors.