Cochlear Share Price up 9% on Bumper Half-Year Earnings (ASX:COH)

As the trading week comes to a close, another round of earnings has set the stage. With a wide variety of half-year reports making waves.

When it comes to the cream of the crop though, the big winner has to be Cochlear Ltd [ASX:COH]. With the $14.6 billion company posting a stellar result.

And while Cochlear is still facing a few headwinds, the market has certainly rewarded them today. Sending the COH share price 9.2% higher at time of writing. A fresh high for the 2021 calendar year, but still a little way off their all-time highs set around this time last year.

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Nevertheless, for shareholders, it’s a great sign that this stalwart stock is headed back in the right direction.

Big profit overshadows pandemic problems

The big standout in Cochlear’s half-year result is of course its net profit. Coming in at $236.2 million for the six-month period. Up by 50% from the same time last year.

That also helped lift earnings per share to $3.59. A 32% increase from their HY20 figures.

Needless to say, that is an impressive return for an otherwise challenging period. With the ongoing uncertainty of COVID-19 still proving problematic.

However, there are still some concerns to be gleamed from this bumper profit.

Sales revenue for instance was down 4% year-on-year. Largely dragged down by an 8% fall in cochlear implant units. All of which culminated in a decrease in EBITDA — suggesting that the net profit result has largely been driven by non-sales factors.

Cochlear made particular mention of the impact of ‘one-off’ benefits. With the most noteworthy being litigation-related tax benefits, investments in other companies, and of course JobKeeper assistance.

Because of this, it is a somewhat distorted result. Especially as Cochlear plans to hand back the government handout.

As such, management has decided to lower their dividend. Cutting shareholder yields by 28%, from $1.60 per share down to $1.15. A damning blow for income investors.

Granted, that hasn’t stopped Cochlear from issuing an upbeat outlook ahead. As they comment:

For FY21, Cochlear expects to deliver underlying net profit of $225-245 million, a 46-59% increase on underlying net profit for FY20.

While there continues to be uncertainty about the trajectory of COVID, we are increasingly confident of the resilience of our hearing implant business.

Momentum since November has slowed across a few countries as a result of the current surge in COVID infection rates. The deployment of COVID vaccines, and the rapid return to surgeries that followed the March / April shutdowns, gives us some confidence that any further surgery deferrals could also recover quickly.

Outlooks for COH share price

So, if we’re taking Cochlear’s word, today’s incredible profit may be consistent with their full-year accounts — when they release them later this year.

That is obviously fantastic news for shareholders, if true.

Granted, nothing is ever certain when it comes to investing. And as their wide forecast range shows, there’s plenty of leeway for surprises. Good or bad.

On top of that, while lower dividends leave the company with more cash to reinvest in growth, it is a blow for some investors. A result that may encourage some to look for better, more reliable yields elsewhere.

For that reason, if you’re looking for better value from your investments, Cochlear may not be your best bet. Instead, you’d be far better off looking for stocks with less volatility and more stability. Something that you can only truly find from ‘deep value’.

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Ryan Clarkson-Ledward,
For Rum Rebellion

The Rum Rebellion