Down 8% in a week, is the Cochlear share price in the buy zone?

Cochlear shares are in the spotlight once again.

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Key points

  • Brokers have weighed in on the Cochlear share price after a shaky start to the year
  • Sentiment remains positive, although buy and hold calls are evenly split amongst analyst coverage
  • The Cochlear share price has slipped around 8% in the past week and 3% year-to-date

Shares of Cochlear Ltd (ASX: COH) have struggled this year to date, dipping 8% in the past week of trade alone.

The Cochlear share price pushed another 6% lower in the past month of trade, coming off a high of $236 in late April. Now trading at around $211, this represents an overall drop of almost 3% since January.

In wider market moves, the S&P/ASX 200 Health Care Index (ASX: XHJ) has slipped 10% this year to date but is up 3% in the last month of trade.

Is the Cochlear share price a buy?

Broker sentiment is mixed on which direction the Cochlear share price will travel in the next 12 months. In terms of ratings, calls are split evenly between buys and holds, according to Bloomberg data.

Specifically, 42.1% of coverage has it rated a buy or hold, with the remaining 16% of brokers urging their clients to sell Cochlear shares.

A flurry of broker updates came through in late April for Cochlear. Goldman Sachs pointed out that the company’s acquisition of Oticon Medical could be a net positive to boost industry pricing.

That’s because Oticon was previously a challenger to Cochlear, albeit with a lower pricing point, and the acquisition also folds in additional research and development (R&D) opportunities for the company.

The broker retained its buy rating and values Cochlear at $237 per share, well ahead of Morgan Stanley, which values it at $208 per share with a neutral stance.

Still, those at Morgan Stanley reckon the Oticon transaction shouldn’t face any issues from regulators, and that the company won’t add a material impact to Cochlear’s bottom line.

That view differs from analysts at Macquarie, however. The Macquarie team reckon that the $170 million Oticon transaction could spell earnings dilution in the short term for Cochlear.

Analysts reckon that there will be a range of $30 million–$60 million in integration costs and that Cochlear only acquired Oticon to boost its market share of the implant device market.

Macquarie is neutral on Cochlear as well, albeit values the company at $215 per share.

Opinion differs at Citi however, with analysts there rating the stock a buy with a $235 per share price target – right near Cochlear’s former highs.

The team at Citi made an interesting report noting the Oticon transaction is both an opportunistic and defensive play by Cochlear.

One curious point is the broker reckons Cochlear could even be capitalising on Oticon’s recall of its Neuro Zti implant in 2021, due to malfunction issues.

This made entry into the US difficult for Oticon, Citi says, but the transaction also consolidated Cochlear’s position towards becoming a market leader in the bone-anchored hearing aid segment as well.

The consensus price target for Cochlear according to Bloomberg data is $223.90 per share, implying around 6% upside potential should this come to fruition.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in 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 Scott Phillips.

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