Treasure Chest: Cochlear Reinvigorated?

This story features COCHLEAR LIMITED. For more info SHARE ANALYSIS: COH

-Market share stabilises
-Regains lead in development
-New CEO a panacea?
 

By Eva Brocklehurst

Cochlear Ltd ((COH)) appears to be reinvigorated and making up ground in market share. Ahead of the company’s FY15 results, JP Morgan anticipates a strong performance and envisages industry growth will be attractive for several years to come.

The second “Ear to the Ground” survey of audiologists in the US has prompted the broker’s upbeat assessment of the company’s ability to grow. The survey signals overall market growth for cochlear implants is around 10% and, importantly, the company appears to be gaining back some ground. A year ago most brokers were worried that rivals were mounting serious challenges to the company’s position as the number one player in cochlear implants.

JP Morgan believes market share has now stabilised, or slightly improved, in the US. The company is also benefitting from a strong processor upgrade cycle on the back of its Nucleus 6. Moreover, the hearing aid industry appears to be encouraging candidates to go for implants, as there is better coverage from insurers. In this respect, the category supplying the greatest number of implant candidates is the 60-year plus group, and this underpins Cochlear’s focus on this cohort.

A year or so ago the company appeared off balance, with its competitors seemingly taking advantage of its stumbles. JP Morgan observes the company was well behind in the successful trend in waterproofing devices. Now, with its 2.4GHz wireless technology and hybrids, the situation has turned around. In contrast, rival Sonova is noted to have some problems with its comparable Naida CI Q70 processor.

Macquarie has also been critical of the company in the past for concentrating too much on new product developments and not on increasing the market for existing products. The departure of the long-standing CEO, Chris Roberts, a couple of months ago, was considered a significant positive in this regard. His replacement, Chris Smith, headed up the US division previously and has a background in sales and marketing. On the back of this development, Macquarie is more confident, with an Outperform rating and a $95.00 target.

JP Morgan suspects the change in CEO may renew focus on the company’s spending on research & development, which is at a significant premium to its peers. Any improvement in the productivity of R&D spending has potential to create some meaningful earnings leverage. The broker’s bullishness translates to an upgrade to Overweight from Underweight and an increase in the target to $90.62 from $73.30.

Other brokers on FNArena’s database are not so bullish at this juncture. In May, Deutsche Bank reiterated a Sell rating given the stock’s “rich” valuation. There are six Sell ratings and two Buy on the database (Macquarie and JP Morgan). The consensus target is $75.18, suggesting 12.4% downside to the last share price. Targets range from $61.59 to $95.00. 
 

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