COH leads the implantable hearing devices segment, and is a vital player in developing hearing devices for over three decades. COH, which sells its devices in over 100 countries, hold immense potential to expand its more operations in more regions, and penetrate further in the existing regions.
COH is known for using state-of-art technology in its research to come up with a product of highest quality. The 2011 recall might have somewhat damaged the company’s goodwill, but since then, it has worked hard to regain its reputation by offering impressive products, for instance, its latest Nucleus 6 product.
Nucleus 6 played a vital role to help COH hit record revenue. For the first half of 2015, COH posted a record revenue of $440.5 million, an increase of 17% over the same period last year. There are good chances that the momentum will continue as new accessories and approvals have worked in favor of Nucleus 6, so far, and more products are expected to come later this year. Also, the company has received regulatory approval for five new products, in the second half of the year, across numerous regions.
COH almost doubled the sales of sound processor upgrades, but the performance of new implants was almost flat as sales witnessed strong growth in the US and Western Europe, offset by weak sales in the developing nations. Though the US has been the company’s biggest market, COH did won a recent deal in China, where the government's free trade agreement will help it to operate in the region. Though COH lowered its interim dividend by 29% to 90 cents per share, it was mainly due to the reason that company went back to paying around 70% the profits to the shareholders.
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Revenue + Profit (Source: Company Report)
Last week, COH announced that it won an approval form US FDA to use Cochlear Nucleus 6 Sound Processor with the Nucleus 22 Cochlear Implant, giving long-time users of cochlear implants an access to the latest technology in true wireless and automatic hearing. However, it is only first of the many steps needed to launch a new upgrade.
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Financial Highlights (Source: Company Report)
COH offers excellent growth potential with net profit expected to see a phenomenal jump on the back on new product launches such as Nucleus 6. Though COH has not given a full-year revenue guidance, it expect a stable growth in the second-half of 2015. Since, COH’s earns a major portion of its revenues from overseas, a further fall in the Australian dollar will work in favor of the investors.
Investors, also, will be hoping for the momentum to continue as the shares are presently trading over price-to-earnings ratio of over 30 times forecast 2015 earnings. If such expectations are not met, investors must be prepared to face some volatility.
COH is also among the beneficiaries of Abbott government’s cash injection in Australia’s high-value manufacturing businesses. As per the reports, the company would utilize the money received to buy plant and equipment, which will help it support its next-generation hearing implants. The fact that the company protects its products from becoming commodity products, adds more quality to the stock. A few months back, the company won a three patent ruling in a U.S. District court.
At a time when COH posted strong numbers, with momentum expected to continue, rival Sonova came up with unimpressive results, last month. The European-based firm cited rising competition as one the primary reason for the slip.
Cochlear Daily Chart (Source - Thomson Reuters)
Over the past two-three years, COH’s stock has been witnessing a strong momentum, but like always, the stock is not free from risks. Recently, the company replaced its long-standing CEO Dr Chris Roberts. No matter, how much experience and skilled a person is, it does take some time to settle. Same may be the case with COH. Also, there is always a risk of cheaper and newer alternatives flooding the markets. There is a concern among the analysts that the company is going ex-growth owing to resurgent competitors in Med-El and Sonova's Advanced Bionics, who are making constant efforts to gain market shares. COH could face headwinds from Chinese upstarts such as Nurotron Biotechnology, which present a cheaper alternative.
Over the years, COH has proven itself to be a strong company, whose earnings are expected to grow steadily over the years as it expands its operations to satiate the unmet medical needs of millions around. Even though the stock has declined from the recent highs of February and March, it would be prudent to wait for further decline or wait until it comes with the full-year results in August. Until then the stock appears a bit expensive to own.
Based on the above mention reasoning, we rate the stock as EXPENSIVE at the current price of $81.06.
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