The Cochlear Limited (ASX: COH) share price has been a strong performer so far in 2021.
Since the start of the year, the hearing solutions company's shares are up a sizeable 16%.
Why is the Cochlear share price charging higher?
The Cochlear share price was given a major boost earlier this month from the release of a better than expected half year result.
For the six months ended 31 December, the company reported a 4% decline in sales to $742.8 million. This followed a big improvement in the second quarter which saw constant currency sales increase 7% over the prior corresponding period.
On the bottom line, the company posted a 6% decline in underlying net profit to $125.3 million. Management advised that this reflected a recovery in its sales and lower operating expenses due to material COVID-19 related savings.
Impressively, in constant currency, this was just a 4% decline from last year's record half year profit. That period was of course prior to COVID-19 emerging and disrupting the global economy.
Is it too late to buy shares?
One broker than believes the Cochlear share price is overvalued now is Goldman Sachs.
This week the broker reiterated its sell rating but lifted its price target on the company's shares to $189.00.
Based on the latest Cochlear share price of $220.38, this price target implies potential downside of over 14%.
Why is Goldman Sachs tipping the Cochlear share price to decline?
Goldman explained why it is bearish on Cochlear.
It said: "Whilst near-term growth rates are strong off a depressed FY20 base, we struggle to see COH retracing pre-Covid expectations for many years. We currently model an installed base in FY23 that is -3% below our pre-Covid forecast, and yet, adjusting for the 15% equity dilution in Mar-20, COH is now trading +5% above its pre-Covid peak."
"There are still many reasons to like this stock, but we expect the majority of 'recovery' upgrades will be posted after Friday's 1H21 results update and, looking slightly further ahead, we believe COH's normalised EBITDA CAGR of 8% (FY22-25E) does not support its peak multiple (31.0x NTM EBITDA, +1 SD above 5yr avg.; +46% vs. sector)," it concluded.
However, one broker that doesn't agree with this view is Macquarie. Last week the broker reaffirmed its outperform rating and lifted its price target to $245.00.
Time will tell which broker is right.
