This morning Cochlear Limited (ASX: COH) posted a net profit of $145.8 million on revenues of $804.9 million for the full year ending June 30, 2015. The revenue and profit were up 15% and 56% over the prior corresponding period.
The stock fell 7.2% to $83.56 for the day, which suggests some overly optimistic analysts' expectations were baked into the share price before today's results release. No doubt the other big disappointment for investors was a final dividend down 21% on the prior corresponding period and 25% for the full year.
Disappointing on the dividend front is a sacrilegious act in a world of low cash returns and the market's response in selling the stock was rather predictable.
Net debt however has been reduced to $140.5 million and the business has enjoyed a solid 2015 supported by the success of the Cochlear Nucleus 6 and Baha 5 products brought to the market.
Market-leading healthcare stocks rely on new products to maintain their edge when competitors such as Swiss challenger Sonova have been competing for market share. This is especially true in the hearing aid space, where businesses with a reputation for offering the best products are able to charge a premium for them.
Operating margins for healthcare stocks are also another closely watched metric by the analyst community as expanding margins generally spell bigger profits and share price gains, whereas falling margins spell trouble, downsizing and a potential sell signal for the analyst community. Cochlear lifted its margins to 22.3% for this financial year, compared to 18.6% last year, but that result was no secret and reflected in a share price rise of 23% over the past year.
Earnings per share were 256.1 cents, which still places the business on around 33x trailing earnings in another reflection of the high regard market-leading healthcare businesses on the ASX are ordained with by investors.
In my opinion Cochlear remains one of the best stocks on the ASX and long-term investors would do well to take advantage of today's price falls to add a top-quality business to their portfolios.
