Shares in bionic ear-maker Cochlear Limited (ASX: COH) have been on a tear soaring 7.1% during Wednesday's session and another 5.9% early today. The stock is now trading at just over $89.30 per unit, up more than 13% from just $78.93 on Monday's close.
Although the company hasn't released any news which would specifically explain the sudden surge, the strong gains can likely be attributed to three factors.
Firstly, it is likely that the market is responding to a falling Australian dollar which has fallen below US79 cents after having risen above the US81 cent mark recently. Cochlear generates a significant portion of its earnings overseas, with more than 82% of its revenue coming from the Americas and EMEA (Europe, Middle East and Africa) in the most recent financial year, so the company should benefit from a weaker local currency.
Secondly, Cochlear was one of the 19 businesses to benefit from the Abbott government's cash injection into Australia's high-value manufacturing businesses. As was highlighted by The Mercury, Cochlear will use its share of the $50 million (which will be between $1-5 million) in funds to purchase plant and equipment, which will enable it to bring manufacturing capability back to Australia for its next-generation hearing implants.
The third factor to consider is that Sonova, which is one of Cochlear's European-based competitors, released a somewhat uninspiring result earlier in the week where it cited increased competitive pressures as being one of the primary reasons behind the slip. Given that Cochlear is the world's leading bionic ear-maker, Sonova's result should bode well for the company.
Cochlear is a high-quality business whose earnings are expected to continue growing strongly over the coming years, however, it is by no means 'cheap', with its shares trading on a trailing price/earnings ratio of 54x. While it could still make for a reasonable investment today, there are other stocks which are presenting as far greater buys right now.
