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COCHLEAR (COH)
COCHLEAR (COH)
A T 21 DEC 11

Cochlear
BY: James Greenhalgh
RE A DIN G TIM E :

GENERAL INFORMATION Latest Recommendation: Share Price: 12-month range: Hold $71.36 $51.83 - 72.81 Healthcare & Biotechnology Business Risk: Share Price Risk: Maximum Portfolio Weighting: Medium Medium 5%

AT 24 OCT 12

2 mins

HOLD
PRICE AT REVIEW : $62.72

Yesterday’s 16% share price rise for Cochlear shows just how desperately investors love this stock. But the wild enthusiasm seems misplaced, even though the announcement contained several snippets of good news relating to the recall of the Nucleus 5. The first is that Cochlear believes it has identified the problem with the manufacturing process; variations in a process called ‘brazing’ allow tiny cracks to develop at a later stage. But identification is only the first step in returning the device to market: Cochlear must now thoroughly test its manufacturing processes, conduct clinical trials, then wait for approval from regulatory authorities. If all goes well, it could be a year before the Nucleus 5 goes back on sale in the crucial US market. Perhaps what investors latched on to was this sentence: ‘There were fewer reported failures in November 2011 than in October 2011’. Nevertheless, the total failure rate is now at 1.9%, up from around 1% in October. This represents close to 500 people who will need surgery to replace their implants. This recall remains potentially more serious than the market believes. And we still have the impression that Cochlear is trying to highlight the positives rather than telling the full story. The stock has now risen 10% since Cocky Cochlear boosts payout on 21 Oct 11 (Hold – $56.97). Given the risks relating to the recall, and that the stock looks fairly expensive on a relative basis, it’s now further away from an upgrade. HOLD. The model Growth portfolio owns shares in Cochlear. Disclosure: The author, James Greenhalgh, owns shares in Cochlear.

Category: RECOMMENDATION GUIDE Sell

A bove $ 8 5 .0 0

$62.72

Analyst:

Jam es Greenhalgh
Prices correct as of 3:35 PM, 24-Oct-12 Price data prov ided by Paritech Pty Ltd

Long Term Buy
U p to $ 5 0 .0 0

Buy

Below $ 4 0 .0 0

COH Financial Data
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07 Aug 12

Cochlear: Result 2012 Hold - $63.00
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ResMed v Cochlear a tw o horse race Hold - $57.95
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All ears at Cochlear’s results meeting Hold - $62.48
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Update Hold - $62.72
21 Oct 11

ASK THE EXPERTS 04 Sep 12 31 Aug 12 09 Aug 12

SPECIAL REPORTS

Who owns Cochlear implant software? Key risks for Cochlear Return of Cochlear's Nucleus implant

Cocky Cochlear boosts payout Hold - $56.97 View all EDITOR'S PICKS
15 Aug 11

to market Cochlear not threatened by cheaper hearing aids
19 Apr 12 23 Mar 12

ResMed v Cochlear More

Shining a light on Cochlear
05 Jun 09

Here’s to Cochlear
03 Jul 08

Cash up for classy Cochlear
11 May 05

The inside track on Cochlear

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Copyright © 2012 Intelligent Investor Share Advisor. Published by The Intelligent Investor Publishing Pty Ltd. ABN 12 108 915 233. Australian Financial Services Number 282288. Price data provided by Paritech Pty Ltd

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