Cochlear Limited (COH)

By Jason Fittler

Cochlear Limited (COH) is a manufacturer and distributor of cochlear implantable devices for the hearing impaired.

With direct operations in more than 20 countries, COH distributes its products in the Americas, Asia Pacific, Europe, Middle East and Africa. COH offers three main products: Cochlear Nucleus, Cochlear Baha, and Cochlear Hybrid.

Their competitor Oticon Medical, will seek FDA approval for a new cochlear implant (CI) in 2015 using a substantial equivalence claim.

The implant, which is based on technology gained from its acquisition of Neurelec in Apr-13, is expected to be updated to feature many of Oticon's hearing aid technologies, along with signal and wireless processing.

Oticon Medical launched its BAHA in competition to COH in 2010; we believe that competition from Oticon was the key antagonist in COH's BAHA market share decline over 5yrs.

Key downside risks to COH's include:

1) Long-term appreciation in the $A;

2) Ability of rivals to establish reliability and grow market share; and

3) Changes in funding mechanisms from private and government payers.

A potential upside risk is unit volume growth, which tends to be the key margin driver.

Though we expect COH to report solid growth at first half 2015, we highlight the growing competitive landscape as carrying risk for 2015 and beyond.

We also note the competitive risk as incompatible with COH trading at 31 times the 2015-estimated PE along with a declining dividend yield near-term.

Our target price for this company is $54 and would recommend taking profits at current price.

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