2 Healthcare Stocks to Watch - COH, CSL

Cochlear Limited

Lower debt burden coupled with robust fundamentals: Cochlear Limited (ASX: COH) is into the healthcare sector having a range of implantable hearing solutions. The group operates through segments spanning across the Americas, EMEA and Asia Pacific regions and sells products in more than 100 countries.

The company has several large long-term investment projects including the development of the China manufacturing facility with the construction phase expected to be complete by the end of FY20.


FY18 Financial Highlights (Sources: Company Reports)

On the financial front, the revenue stood at $1,351.4 million in FY18 compared to $1,239.7 million in FY17, an increase by 9.0% Y-O-Y. PAT stood at $245.8 million in FY18, as compared to $223.6 million in FY17, an increase of 10.0%. The net debt decreased significantly by $43.2 million to $86.2 million in FY18, driven by improved earnings and initiatives to improve cash management.

Among the key ratios, the Asset turnover, Pre-tax-ROA and ROE stood at 1.19x, 29.7% and 43.7% in FY18 as compared to 1.20x, 29.5% and 45.1% in FY 2017. The asset turnover ratio and ROE decreased by 0.7% and 1.4% Y-O-Y. However, asset turnover ratio and ROE are well above the industry medians. The current ratio increased from 1.69x in FY17 to 2.03x in FY18, an increase of 20.1% approximately mainly driven by lower current liabilities on the back of decreasing loans & borrowings.
Focus on making deployments: Going Forward in FY19, there are expectations that the company would post net profit between $265-275 million. The company has been targeting dividend pay-out ratio of around 70% of net profit. The company would also be making deployments of the operating cash flows towards the activities which are focused on building market access as well as awareness.

The stock, however, is currently trading at $187.560 with a market capitalization of ~$10.76 billion. The stock has generated a YTD return of 6.60% and is trading at higher P/E multiple of 43.63x. At the current level, we assume that the price has discounted all the positive developments. We, therefore, recommend the investors to keep a watch on the stock at the current market price of $187.56.
 

CSL Limited

Constant revenue growth & robust fundamentals: CSL Limited (ASX: CSL) is under the health care segment, and the company is engaged into development, research, manufacturing, and marketing of cell culture media, human plasma fractions, and pharmaceutical and diagnostic products.

The company, on 10 January 2019, has released its presentation in the JP Morgan Healthcare conference. The company discussed its strong market position with $8.0 billion revenues in more than 60 countries. It has heavy R&D pipeline which can fuel future growth with a strong financial position. The strategic partnership between CSL and Vitaeris will support an emerging transplant portfolio.


Five Years Summary (Source: Company Reports)

The operating revenue has a CAGR growth of 9.51%, and a consistent increase over the past five years on a reported basis with FY2018 sales revenue standing at $7,588 million an increase by 14.69% Y-O-Y basis as compared to $6,615.8 million in FY 2017 driven by improving core operations.The net income stood at $1,728.9 million for FY 2018 compared to $1,337.4 million in FY 2017 an increase of 29.3% driven by improved sales. Among the key ratios, the company has a pre-tax ROA of 22.9%. The company’s ROE stood at 47.7% in FY18. The operating profit margin improved by 4.4% Y-O-Y and stood at 28.8% in FY18 on the back of improved revenues. The stock, however, is currently trading at $196.380 with a market capitalization of ~$89.36 billion. It is trading at a PE multiple of 38.150x. The stock has yielded a YTD return of 6.42%. With several strategic partnership and acquisition in FY 2018, we suggest to investors that they should keep an eye on the stock and its performance and wait for better entry level in the upcoming trading sessions as it is trading toward the higher level.
 

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