The Cochlear Limited (ASX: COH) share price has struggled in 2019, down nearly 22% from its 2018 highs. However, a strong half-year report, pipeline of innovative products and potential growth in emerging markets could make the hearing solutions company's share price a long term buy.
Strong half-year earnings
Cochlear reported half year earnings in mid-February and despite impressive numbers, its share price was smashed by nearly 9% over concerns of future growth. Highlights of the report included a 16% increase in first-half profit and 11% growth in sales revenue. In addition, Cochlear managed to reduce net debt to $72.7 million from $86.2 million and produced a 16% increase in earnings per share (EPS) of $2.23.
Despite increasing total implant sales by 5%, concerns were raised over competitors in the USA eroding Cochlear's market share. An impending court case in the USA over accused IP breaches also raised anxiety over the short term. Cochlear reaffirmed full-year guidance and increased its pay-out dividend by 11%.
Innovation and emerging markets
Cochlear has an extremely strong product pipeline and spends more than any competitor on research and development. The N7 Sound Processor, which is iPhone and Android compatible, has emerged as the new high-margin growth opportunity for Cochlear, already contributing 29% to total sales.
In addition, the company looks to expand operations into sleep apnoea by targeting sufferers who have had no success with traditional therapies. Cochlear recently invested $21 million into European company Nyxoah which specialises in neurostimulation therapy. The company has developed battery-free neurotransmitter devices that deliver nerve stimulation to patients suffering with sleep apnoea.
Cochlear currently dominates the global paediatric market with a portfolio of innovative hearing solutions. The adult population is the next segment set for great growth given the ageing population across developed and emerging markets. Cochlear's services business grew by 28%, with emerging markets in Japan and China flagged as new growth markets.
Foolish takeaway
In my opinion, Cochlear is one of the greatest companies listed on the Australian Stock Exchange. The company possesses products that are market leaders in quality, a strong R&D department and recurring earnings through software upgrades. Continued innovation, good management and the tailwind of emerging markets and an ageing population make Cochlear a potential long term buy.
