The Cochlear Limited (ASX: COH) share price is up 4% over November and 47% over 2017 as the hearing aid business that makes most of its money in North America looks to China for its next leg of growth.
Last July the group announced it would invest $50 million in constructing a new manufacturing facility in Chengdu in China's Sichuan province, with China now a fast-growing and top five market for Cochlear.
Moreover, much 0f Cochlear's sales growth in China is paid for by public funding at the behest of China's one-party state and Cochlear may already be seeing a return on its $50 million investment after it secured the right to sell 1,491 hearing aid systems in the latest government tender.
The units are expected to be delivered mainly over the second half of FY 2018 and should provide a significant boost to Cochlear's top line over the financial year.
In FY 2017 Cochlear posted a record net profit of $224 million and forecasts this year's effort to come in between $240 million to $250 million using a weighted average exchange rate of 80 cents on the AUD/USD cross.
It seems its FX forecast may be a touch pessimistic and as such its actual net profit could come in at the top end of guidance as a minimum.
According to The Wall Street Journal analysts expect earnings per share to come in at $4.32 over FY 2018, which would represent EPS growth of 11% with dividends per share anticipated at around $3.10. On a forward basis that would place the stock on 41x earnings with a yield of 1.72% when selling for $180.
However, if the Australian dollar remains around US 76 cents or lower out to June 2018 then Cochlear could comfortably beat these expectations. This is also a business that should be able to deliver consistent long-term growth thanks to the high barriers to entry, its pricing power, and strong underlying demand for its products.
For now I would rate the stock a hold on valuation grounds and would look to ResMed Inc. (CHESS) (ASX: RMD) as another high-quality healthcare investment that offers better value for money with shares at $11.05.
