Why this top broker says the Cochlear (ASX:COH) share price is heading lower

Are Cochlear’s shares overvalued?

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The Cochlear Limited (ASX: COH) share price is back on form on Tuesday.

In afternoon trade, the hearing solutions company’s shares are up 1% to $213.25.

This means the Cochlear share price is now up 12% in 2021.

Where next for the Cochlear share price?

Unfortunately, one leading broker is calling time on the Cochlear share price gains.

According to a recent note out of Goldman Sachs, its analysts have retained their sell rating and $197.00 price target on the company’s shares.

Based on the current Cochlear share price, this implies potential downside of almost 8% for its shares over the next 12 months.

What did the broker say?

While Goldman Sachs expects trading conditions to improve given the vaccine rollout, it does have concerns that demand could take longer to recover. This is due to a combination of cochlear implant surgeries being highly elective and potential hesitancy from older patients.

Goldman said: “Although improving vaccination rates against a challenging comparator should set up COH for a relatively stronger period, implant surgeries are highly elective. Although COH is a high-quality operator, leveraged to a recovery in procedure volumes, it is possible there is some persistent hesitancy amongst a proportion of its target market in DMs (aged 70+).”

In addition, although the broker is a fan of the company, it doesn’t see enough value in the Cochlear share price to change its recommendation to something more positive at this point.

“Whilst there are many reasons to like the stock, at current valuation, we continue to see better value elsewhere across our coverage (COH 29.7x 2022E EV/EBITDA for +3% FY19-22E NPAT CAGR). We are Sell-rated on COH with a 12m TP of A$197 based on our target NTM EV/EBITDA multiple of 26.2x,” Goldman explained.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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