After a spectacular run in mid-2018 to $215.81, the Cochlear Limited (ASX: COH) share price finished flat for the year. The negative sentiment in markets throughout late 2018 was a cause for the drop in Cochlear's share price. This correction affected Cochlear significantly as the share price was already trading at significant premiums.
On Monday, the Cochlear share price increased by 7% in a day to $180.76. This was most likely off the back of its Nucleus Profile Plus Series Implant announcement which is expected to launch in many developed markets. The recent change in threshold for a Cochlear implant is a tailwind that should be accounted for into Cochlear's share price.
How is Cochlear's growth looking?
In the recent half-year results, Cochlear reported growth in its sales revenue across all operating regions. Americas showed increases of 3% despite the launch of a competitor while both EMEA and APAC showed increases of 8%.
Cochlear continues to target both developed and emerging markets with strength in the latter. 58% of sales revenue was from Cochlear's implants with the senior population continuing to show the fastest growth. Given the evolving population with an increasing number of seniors, Cochlear is well positioned to capture profits from a megatrend as such.
The services division made up 29% of sales revenue with strong demand for its Nucleus 7 Sound Processor. The remaining 13% of sales revenue was from the acoustics division with continual demand for its Baha 5 system.
Cochlear's cashflow statement shows organic growth in cash from its operating activities with significant increases in its free cash flow. As a result, Cochlear was able to increase its interim dividend by 11% and maintain a reasonable dividend payout ratio.
Despite its PE trading above the industry, the Cochlear share price can be justified with the current growth of its three business divisions. Future outlook for Cochlear includes retaining market leadership with continuing research and development and improving operational efficiencies to maintain a strong financial position. Due to Cochlear's international exposure, currency risk should be considered when projecting its future growth. However, if the FY19 outlook for Cochlear is met, the share price could be well on its way to $200.
Foolish takeaway
With Cochlear's market-leading technology, it is likely to hold a dominant position in the hearing impairment industry. The majority of Cochlear's revenue and profits are offshore which benefits investors by hedging against the weak domestic economy.
