Reality Bites for Cochlear, as Share Price is Buoyed by Hopeful Outlook

Earnings season has delivered yet another surprise.

Cochlear Ltd [ASX:COH] was the big standout today, reporting its first net loss since listing on the ASX back in December 1995.

Suffice to say, that is not the kind of news that shareholders like to hear (no pun intended).

Despite this historic loss, the market managed to see the brighter side of things, with shareholders overlooking the recent downturn to see a far more optimistic future.

That has helped the COH share price climbed by 9.89% at time of writing — the highest levels it has seen since February.

Two starkly different halves of the year

For Cochlear, it was the very definition of an up and down year, with the first half delivering decent growth, and the second half seeing a massive shortfall.

Revenue was up 9% to 31 December before cratering by 22% in the half of 2020 (to 30 June) thanks to the pandemic.

April in particular was a terrible month for the company, seeing an 80% fall in revenues from implant surgery.

All of these factors combined led to an underlying net profit of $153.8 million — 42% shy of last year’s tally.

But that wasn’t all.

The real kicker for Cochlear, and the thing that has driven its bottom line into the red, was a $416.3 million legal bill. The company was forced to pay this sum after a bitter patent dispute didn’t end in its favour.

Because of that, Cochlear has reported its first ever net loss as a public company, reporting a $238.3 million hit to its bottom line.

It is a painful result, but at least it is over.

And despite the loss, the company is already looking ahead, with plenty of opportunities in the mix. Namely, the rapid change that this pandemic is bringing to healthcare as a whole:

The pandemic has also driven the rapid adoption of telehealth and telemedicine which may lead to faster than expected structural changes in healthcare delivery. We experienced this first hand with the FDA fast-tracking the approval of our Remote Check solution in the US.

Our professional partners too have shown greater interest and demand for our connected care solutions over the last few months which also include Cochlear Link and Remote Programming in many markets.

We have been investing in connected care solutions for many years and believe they provide the opportunity to open up access to our products and optimise outcomes for recipients by transforming the care model while delivering efficiencies to clinics.

So, all in all, Cochlear could move on to bigger and better things pretty quickly.

Indeed, revenues are already starting to bounce back, which is no doubt a big reason for the share price rising today, even with the underlying net loss.

This begs the question: Is now a good time to invest in this healthcare juggernaut?

Plenty of potential

There is no doubt that this could be a turning point for Cochlear. A moment that sees the company move to even higher highs.

Whether or not it can make it happen, though, is impossible to say.

There are no guarantees when it comes to investing, after all. No matter how big or cashed up the company may be.

Cochlear is certainly a company worth keeping an eye on though. Especially if you’re looking for a less risky exposure to the healthcare sector. After all, I’d be surprised if Cochlear reported another net loss by the end of our current financial year.

Having said that, there are potentially better stocks to keep an eye on too.

It is hard to ignore the incredible performance at the smaller end of the market, with many stocks outpacing and outperforming the large-caps significantly.

That’s why we suggest looking out for high-value small-cap plays. That is, stocks that have the potential to deliver exponential returns.

To learn more, check out our full report right here.


Ryan Clarkson-Ledward,
For Money Morning

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

To find out more about the publications Ryan works on and how you can subscribe, please click on the corresponding link here:

Money Morning Australia