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Treasure Chest: Cochlear Advancing

Treasure Chest | Oct 27 2020

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

FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Macquarie has its ear to the ground, revealing activity levels have improved substantially for Cochlear in the US, which augurs well for a recovery in sales growth.

-Half of respondents expect patient growth to be even higher
-Cochlear benefiting from AB product recall
-Short-term risk that non-urgent elective surgery is put off


By Eva Brocklehurst

Cochlear ((COH)) is highly rated as a provider of cochlear implants in the US, having has received a strong positive response from a survey of 16 US-based specialist audiologists.

Macquarie's ear to the ground shows activity levels have improved substantially, consistent with the company's recent update. In the survey, half of the respondents expect patient growth will be even higher over the next 12 months.

Currently, respondents are seeing 71 new patients per week. Cochlear was the one brand most frequently noted as gaining share over the past 3-6 months and this was largely attributed to wireless connectivity.

Customer support, overall product offering and processor size/aesthetics were also important points that were highlighted. Some, however, suggested a new processor launch could be the basis for increased share for Advanced Bionics.

From Ord Minnett's point of view, Cochlear is seeking to take advantage of the disruption caused by the pandemic and the recent product recall by Advanced Bionics. The broker's channel checks in the US also indicate the company made solid market share gains over recent months.

In Macquarie's survey, Cochlear received the highest score among the three manufacturers of cochlear implants with an average of 9.0 from a maximum of 10, followed by Med-EL at 6.5 and Advanced Bionics at 6.3. Given the importance of hearing performance, Macquarie suspects the recent recall of HiRes Ultra/Ultra 3D devices by the latter is the reason why it resulted in the lowest average rating.

Citi was always anticipating gains in market share would occur because of the AB recall and has noted elective surgery is slowly regaining momentum in several geographies. Nevertheless, the broker expects sales will not grow in FY21 and considers the stock is either priced for a fast recovery or the market is willing to look through several years of lower earnings.

Both Credit Suisse (Neutral) and Ord Minnett (Lighten) agree the stock is priced for perfection. The main risk for the short term, Citi ascertains, is the potential for non-urgent elective surgery, such as cochlear implants, to be set back once again.

Volumes are recovering from weaker levels, with the survey suggesting volumes were down just -8% compared with pre-pandemic levels in October, significantly better than back in the May survey when patient volumes were down -68%. The strong positive feedback for Cochlear augurs well for unit sales growth and this underpins Macquarie's Outperform rating.

Nevertheless, uncertainty has prevailed because of the pandemic and the company, while expecting to update the market regularly, has opted not to provide FY21 guidance, although it will continue to invest to strengthen its competitive position.

FNArena's database has two Buy ratings, two Hold and three Sell for Cochlear. The consensus target is $206.05, signalling -8.8% downside to the last share price. Targets range from $175 (UBS) to $241 (Macquarie).

See also, Cochlear On The Mend But Recovery Unclear on October 21, 2020.

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