Cochlear Ltd (ASX: COH) shares were under pressure on Monday.
The hearing solutions company's shares dropped 4% to end the session at $296.36.
Is this a buying opportunity for investors? Let's see what analysts at Macquarie Group Ltd (ASX: MQG) are saying about the blue chip.
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What is Macquarie saying?
Macquarie notes that Cochlear delivered a full year result below expectations last week due to gross margin weakness. It said:
Revenue was in line with expectations. Stronger CI unit sales and better-than-expected services growth were offset by negative geographic mix and lower acoustic revenue. GM declined 140bps YoY, 80bps below our expectations, driven by negative mix shift to CI and overhead recoveries at the new Chengdu facility. uNPAT was ~1% below expectations, despite benefitting from a A$50m reduction in employee STI provisions. Adjusting for this would result in a -13% uNPAT impact.
Unfortunately, the same could be said for its guidance for FY 2026. The broker highlights that the midpoint of its guidance range for the year ahead was 4% lower than it was forecasting. It adds:
For FY26, uNPAT guidance is A $435-460m with the midpoint -4%/-3% vs previous MRE/VA. Our revised forecasts are at the mid-point of NPAT guidance. Within this, we capture 1) gross margin of 74.0% (in line with guidance), 2) net profit margin of 17.6% (guidance of 'a little bit below 18%'). 3) CI/Services revenue growth of +9.4%/+4.6% and (4) Higher cloud related investments for FY26 increasing from ~A$59m to ~A$80mn (post-tax).
Should you buy Cochlear shares?
In light of the above, it may not be a surprise to learn that Macquarie is not tipping Cochlear shares as a buy right now.
According to the note, the broker is sitting on the fence with this one and has retained its neutral rating with an improved price target of $295.90. This is largely in line with where its shares are currently trading.
Commenting on its neutral recommendation, the broker said:
While noting the technological benefits of the Nucleus Nexa system, we see COH's current share price as fair, with near-term downside risk from services revenue and negative geographic mix. Retain Neutral.
Valuation: DCF-derived TP moves to A$295.90 (from A$270.50) driven by model roll-forward, ongoing share buyback, minor changes to capex expectations, with outer year EPS unchanged. Catalysts: Activity/CI unit trends; competitor CI developments (e.g. Med-El TICI pivotal trial outcomes; incorporation of new Sonova technology into CI).
