The Cochlear Limited (ASX: COH) share price has fallen around 22% over the last year. While that's not one of the biggest drops on the ASX in recent times, some experts think that the share has upside.
Cochlear is one of the ASX's largest healthcare businesses. But is it a big opportunity? Some experts have had their say on the hearing device company.
But, first, let's see how the business has been growing in recent times.
Latest profit update from Cochlear
The cochlear implant business reported in its FY22 half-year result that its 12% growth of sales revenue (in constant currency) to $815 million was driven by strong demand for sound processor upgrades and new acoustic implant products.
In HY22, cochlear implant units increased by 7% to 18,598. While services revenue increased 19% to $256.5 million and acoustics revenue jumped 38% to $100.9 million, cochlear implant revenue only went up 1% to $457.9 million.
The company's underlying net profit after tax (NPAT) rose 26% to $159 million thanks to the combination of sales growth and an improved gross profit margin. It also experienced lower-than-expected operating expenses.
The business paid an interim dividend of $1.55 per share, representing a 35% increase.
The company said that its FY22 underlying net profit guidance is between $265 million to $285 million, equating to an increase of between 13% to 22% year on year.
Acquisition
A couple of months ago, Cochlear announced it was buying Oticon Medical, Demant's hearing implant business, for approximately AU$170 million.
As part of the transaction, Cochlear has committed to providing ongoing support for Oticon Medical's base of over 75,000 hearing implant recipients.
The attraction of the deal was that it would provide greater scale and enable increased investment in research and development, as well as market growth activities.
Oticon Medical is expected to add between A$75 million to A$80 million to annual revenue, though it's currently loss-making.
Cochlear noted that while it's a market leader in implantable hearing, it's a small player in the hearing loss segment where hearing aids remain the primary treatment option.
Is the Cochlear share price an opportunity?
The broker Morgans certainly thinks so with a price target of $244.50. That implies a possible rise of more than 20%. Morgans likes the acquisition of Demant Oticon as it increases market share.
Based on Morgans' estimates, the Cochlear share price is valued at 49 times FY22's estimated earnings and 44 times FY23's estimated earnings. Morgans also thinks that surgery delays caused by COVID-19 will help the outlook.
However, the broker Morgan Stanley only rates the business as 'equal-weight', which is like a 'hold' rating. It thinks margins could be challenged, though it notes the revenue growth of services and upgrades can help.
Morgan Stanley's price target on the business is $208, which suggests a high single-digit rise in the share price.
Morgan Stanley thinks the Cochlear share price is valued at 45 times FY22's estimated earnings and 40 times FY23's estimated earnings.
