The manufacturer and distributor of cochlear implantable devices for the hearing impaired, Cochlear Limited (ASX: COH), has just released its half-year results and the market doesn't appear to be impressed. The results showed a 2% increase in revenue to $377 million (before the effect of foreign exchange contracts) and a 53% decline in net profit after tax (NPAT) to $36.8 million (before provisioning for a patent dispute).
The underlying NPAT drop appears worse than it really is as the prior half benefitted from a significant foreign exchange contract gain. Likewise the reported drop in Cochlear implant unit sales of 14% to 11,712 is explained by a large 1,900 unit delivery against a Chinese government tender in the prior period which was not repeated in the current reporting period.
It wasn't all bad news for shareholders though, with the board raising the interim dividend 2% to $1.27 per share. Importantly management also commented that new product launches had resulted in delays in orders in late financial-year (FY) 2013 and early FY 2014 which were now recovering.
Guidance
Despite pressure from a number of angles including a legal suit, competitors and regulatory approval timelines, management is forecasting a NPAT for the second half in the range of $70 million to $80 million.
Foolish takeaway
Today's 9.8% fall in the share price means Cochlear is once again trading near its 52-week low. The stock has now fallen around 27% in the past year compared with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) which has gained about 5.5%.
Despite Cochlear's underperforming share price, the stock still trades on a hefty forward multiple of earnings. Stocks that trade on high multiples run the risk of serious falls in their share price when they disappoint the market – this appears to be the case today. The underlying results from Cochlear appear sound and today's price fall may have created a buying opportunity depending on an investor's view of Cochlear's intrinsic value.
