The Cochlear Limited (ASX: COH) share price has continued its strong run and hit a new 52-week high of $162.48 during trade on Thursday. This latest gain has stretched the medical device company's year-to-date return to an impressive 33%.
Why are its shares racing higher?
In August, the company delivered its FY17 numbers and posted an 18% increase in net profit to $224 million. More importantly, Cochlear guided for FY18 profit of $240 million to $250 million and the stock has responded by gaining 13% since.
The forecast was based on an assumption of a weighted average AUD/USD exchange rate of 80 cents. The decline of the AUD/USD from an 81c level in early September to the current 78c level has helped and further falls could deliver a material impact to the company's bottom line.
Solid unit growth from the company's implant devices is expected to continue in both the developed markets of Western Europe and the US, as well as the emerging markets where market penetration of hearing devices is considerably lower.
The Services and Acoustics segments also both performed well in FY17 by growing at 10% and 26% respectively in constant currency. The Nucleus 7 Sound Processor made for Apple's iPad, iPhone and Ipod products was launced in September and is expected to grow strongly over the next few years. The new device is lighter, smaller, and has a longer battery life than the previous version.
Should you buy?
Cochlear is a wonderful company delivering a truly remarkable product that benefits the lives of many people. It deserves a premium market valuation given its track record.
It currently trades at a P/E ratio of 41 which is roughly in line with its 5-year average of 42. Personally, I would wait for a pullback before initiating a long position. At today's prices, I prefer CSL Limited (ASX: CSL) which guided for a similar increase in net profit for FY18, but trades at a more favourable valuation.
