UBS assumes a less favourable cost leverage scenario than the market, and consequently values Cochlear -10% below the current share price.
The broker’s analysis reveals uncertainty whether sales and marketing initiatives will result in a lower incremental spend going forward.
The historic rate of Cochlear implants (CI) has relied on the company’s continued investment in such operating costs, notes the analyst. However, it’s considered that a driver of this continued investment has been the higher cost associated with converting an older CI recipient versus a paediatric candidate.
As a result, UBS calculates significant profit (NPAT) margin expansion is unlikely, considering adults in the developed world will likely form the vast majority of recipients over the next five to ten years.
The Sell rating and target price of $175 are unchanged.
Sector: Health Care Equipment & Services.
Target price is $175.00.Current Price is $195.64. Difference: ($20.64) – (brackets indicate current price is over target). If COH meets the UBS target it will return approximately -12% (excluding dividends, fees and charges – negative figures indicate an expected loss).
