COH -40.7%: was whacked today after delivering one of the ugliest downgrades we’ve seen from a large cap healthcare name in some time. The hearing implant leader slashed FY26 underlying net profit guidance to $290–330m, down from the previous $435–460m range, with the stock plunging 40% on the day – its worst sell-off since listing.
They had only just said (in February) that earnings would likely be at the lower end of guidance – implying ~$435m, and the market was already sceptical of this, expecting a number ~$390m, but nowhere near the ~$310m new guidance implies.
Apparently, trading conditions deteriorated materially through the March quarter, particularly in developed markets where Cochlear had expected a more resilient backdrop. Consumer sentiment in the US has weakened to historic lows, which appears to be hitting discretionary healthcare decisions among adults and seniors, while surgical capacity constraints in Western Europe have also weighed on implant volumes. In other words, this was not a company-specific slip-up alone, but a sharp demand slowdown across some of its key markets.
There were also a few extra hits on top. Cochlear flagged heightened uncertainty around Middle East sales given the Iran conflict, including the possibility of provisioning up to $10m of receivables, while reimbursement changes in special access zones in China are expected to reduce premium tier sales in 2H. Add in FX headwinds and weaker gross margins, and it feels like everything is working against COH.
What concerns MM though, is that momentum was already struggling, now COH are blaming the Middle East and a multitude of other factors. We don’t own the stock but can understand the market losing faith. A downgrade of this size, only a couple of months after guiding to the low end of the prior range, does materially damage confidence.
- While the long-term thesis around hearing health, penetration growth and product leadership has not disappeared overnight, it’s been severely dented – not one for us at this stage.
MM believes COH is best avoided for now
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