Although Cochlear Limited (ASX: COH) is a healthcare company with a highly specialised niche in the market, it has successfully raised its profile over the last decade to become an Australian household name. Other popular healthcare shares on the S&P/ASX 200 (INDEXASX: XJO) include CSL Limited (ASX: CSL), ResMed Inc (ASX: RMD) and Ramsay Health Care Limited (ASX: RHC).
For those of you who are unsure of exactly sure what Cochlear does, it is a global manufacturer and distributor of cochlear implantable devices for the hearing impaired. It has proved highly successful over the last decade by producing cutting edge, industry leading products driven by a high level of investment in research and development.
As the proportion of the global population over 65 continues to grow, there will be a rising demand for hearing products and solutions over the next few decades. People's hearing often fades and requires assistance as they get older. The World Health Organization has forecast that there will be 1.5 billion people over the age of 65 by 2050 – that's almost three times the number back in 2010. Cochlear is ideally positioned to benefit from this trend.
New product launches to boost revenue growth
In November last year, Cochlear received approval from the U.S. Food and Drug Administration (FDA), for its Osia 2 system, which is the world's first active osseointegrated steady-state implant. This ground-breaking new product bypasses damaged areas of the natural hearing system and instead sends sound vibrations directly to the cochlea. With this green light, Cochlear intends to commence commercial rollout of Osia 2 in the United States (US) in the second half of 2020. This could lead to a significant revenue boost and will further extend the company's product portfolio in the massive US market.
This announcement followed another FDA approval in June last year for the company's Nucleas Profile Plus Series cochlear implant. This new series is built on the world's thinnest implant platform.
Cochlear is also making good progress in constructing a new manufacturing facility in Chengdu, China, that should position it well to tap into the huge Chinese healthcare market in the future.
Strong profit growth on track for FY20
In its most recent FY20 guidance, Cochlear revealed that it expects to deliver a reported net profit of $290 million to $300 million during FY20. If achieved, this would be a 9–13% increase on the underlying net profit that it achieved in FY19.
Management expects strong growth to continue across its business segments in FY20, underpinned by the continuing investments made in product development and market growth initiatives that it has made during the prior few years. Management is targeting to maintain the net profit margin, and reinvest any efficiency gains, currency or tax benefits into market growth activities.
Foolish takeaway
Cochlear has a highly entrenched market position due to its strong brand and market leading position in an industry with high barriers to entry. It also a has wide distribution network. In my view, Cochlear is in a great position to combat any future competition. Its price-to-earnings ratio of 47.25 is higher than the market average, but quite reasonable for a high-quality growth share. It also pays a fully franked dividend of 1.5%.
Despite strong share price gains during 2019, I still think Cochlear is a good choice to add to your portfolio if you are looking for long-term growth.
