Cochlear Limited (COH)

By Jason Fittler

Cochlear has had to recall of all of its un-implanted CI500 Nucleus range.

The product was originally issued in 2009 and only 1% of total units have failed over that time. The problem is since February 2010 the failure rate is 42% with 60% of these incurring in the last 6 months.

This news has seen the share price drop 30% over the past week.

Almost every major research house has put a sell on this stock. So why try and catch this falling knife?

Cochlear has demonstrated operational brilliance since 1996.

Cochlear has demonstrated it has recession proof like qualities in recent years. Both revenues and earnings having both increased every year since 2004. Cochlear has high returns on assets and equity in the order of 24% & 38% respectively. Cochlear is in a net cash position with a strong balance sheet, ready and able to withstand this new issue of the recall.

At the end of the day this recall does not present too much of a threat to Cochlear’s future (in 5-10 years time), as the profound deaf will still require the thinnest market leading 3.9mm thick Cochlear implants.

I expect that the price will continue to fall over the coming months but I am not a big fan of trying to pick the bottom. I will look to dollar cost average into the stock on the dips.

For more information on Cochlear Limited (COH) please contact us on 07 4771 4577.