Shares in hearing technology player Cochlear Limited (ASX: COH) are edging ahead today and, at the time of writing, are 0.46% in the green at $215.44 apiece.
Unlike many of its S&P ASX 200 Index (ASX: XJO) peers, the Cochlear share price has held gains across the last 12 months and into the new year. This year to date, Cochlear shares are flat whereas, in the previous year, they climbed 8%.
Despite their positive momentum on the chart, one broker isn't so rosy on the outlook for Cochlear shares in 2022, urging its clients to either sell or downsize their positions.
Why does this broker say sell Cochlear shares?
Analysts at RBC Capital Markets are cautious about the hearing specialist given the company's slowing sales growth and questionable valuation.
The broker initiated coverage on the Cochlear share price and anticipates it to underperform in 2022. It notes its revenue growth has fallen off, alongside other growth metrics in recent times.
This means Cochlear no longer commands the valuation premium it once did, seeing as cash flows into the future don't appear to be as large as first thought.
Not only that, but the seniors market for hearing technology is becoming more saturated, meaning Cochlear runs the risk of losing market share to competitors in that space, RBC says.
RBC values the company at a significantly discounted $149 per share, suggesting a downside potential of 31% at the time of writing.
It's not all downbeat – one broker upgrades to neutral
Meanwhile, analysts at fellow broker Morgan Stanley note that Cochlear's annual guidance looks to be a bit soft, even amid the weakening sales outlook.
The broker reckons Cochlear will offset the tightening sales through service and upgrade revenue which it feels will continue to hold strong in FY22.
For reference, Cochlear grew services revenue by 21% year on year and acoustics sales were 40% higher from the same time last year.
Given its healthy assessment on the stock, Morgan Stanley upgraded its rating to equal-weight from underweight to reflect the more positive sentiment.
It values Cochlear at $208 per share after raising its price target by 16% in a recent note.
The consensus price target for Cochlear is $221 per share, according to Bloomberg Intelligence, meaning the sentiment is still bullish from the 21 analysts covering the stock.
In fact, 42.1% have it as a buy, another 42.1% have it as a hold right now, with the remaining 15.8% advocating to sell Cochlear shares.
