What: Investors are yet to be convinced that Cochlear Limited (ASX:COH) will return to growth following the recall of its Nucleus 5 product in 2011 and subsequent loss of market share. Following the announcement on Monday that the re-named Nucleus 5 product had received European regulatory approval, the share price jumped by 2.7%. However, the share price gain had been erased by Tuesday this week.
So what: Analysts at Credit Suisse stated that while the announcement was positive, a number of issues had to be resolved before Cochlear could justify its current value, including stabilisation of its market share and receipt of critical approvals in the United States in relation to its N6 sound processor.
Now what: The renewal of the implant in Europe is set to boost sales, and Cochlear has stated that margins should improve in the second half of FY14 as the company incurred significant start-up costs in the first half of FY14 in relation to the release of its CI-500 implant. However, Cochlear currently trades on a price earnings ratio of 33 times FY14 forecast earnings and therefore has lots of growth factored into the share price. Over the long term, Cochlear is set to grow strongly as a result of growing demand from Asia and increased government healthcare spends. Further, Cochlear's hearing devices only penetrate a very small percentage of the addressable market, possibly as low as 1% and therefore there is huge scope for further growth.
