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Is it time to buy Cochlear?

Despite an announcement of the release of the new Nuclear 6 hearing implant product, Cochlear (ASX: COH) is today amongst the worst performers on the S&P/ASX 200 (ASX: XJO) (^AXJO), with shares trading at roughly a 13% discount following the company’s profit downgrade.

The world-leading manufacturer and distributor of cochlear implantable devices has today advised that profit for the second half would be lower than that of the immediately preceding six-month period, citing a combination of slowed US growth and customers waiting for the new model to be released.

The profit downgrade marks the second time in the space of four months that shareholders have been hit hard – which may be one of the reasons the market reacted so strongly to today’s news. Early in February, the company’s shares fell 9.3% in a single day’s trading in par with the release of their half-year accounts. In that report, the company announced a profit of $77.7 million – a fantastic result compared to its previous corresponding period – however, having failed to meet market expectations of hitting $80 million, investors slammed the shares.

Profit for the year is now expected to be between A$130 million and A$135 million, which would mean that the company’s second-half earnings would fall short of the $77.7 million profit reported in its first half.

However, what the market does not seem to have taken into account is the potential for future profitability. With the Nuclear 6 model set to be released in Canada and Korea very soon (whilst regulatory approval for sale in Europe is expected imminently and for America is expected by the end of the year), it is very likely that customers have been waiting it out for the new product to be released. Nuclear 6 reportedly contains ‘significant new functionality improving hearing performance and ease of use for cochlear implant recipients’.

Despite the bad news today, Cochlear remains one of Australia’s best healthcare businesses, along with CSL (ASX: CSL) and Resmed (ASX: RMD). Marking the company’s confidence for the future, Cochlear is anticipating paying at least $1.25 per share as a final dividend.

Foolish takeaway

The market appears to be feeling the effects of cold feet following the company’s most recent plunge, however, Cochlear’s products are arguably the best in the business. For investors focused on long-term gains, this plunge presents itself as a very attractive entry point. As customers begin to purchase the Nuclear 6 model, investors should start seeing significant gains.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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