It’s a surprise in many ways to consider hearing aid business COH as a turnaround stock, but it’s down ~5% year-to-date, having corrected 22% from its July high. In August, its FY24 result was a slight ~3% miss, but that can/did prove ugly when the market is long with little disregard for downside risks, i.e. We are seeing this currently unfold in both directions with the banks and miners. Importantly, COH’s underlying profit rose +27% to $387 million, and it’s targeting sales revenue growth of 10% for the year ahead, with a net profit margin of 18%, i.e. investors were too optimistic as opposed to issues brewing with COH.
After correcting over the last few months, COH’s valuation and risk/reward profile are attractive on the surface, which is a rare position for this quality business. However, we believe the risks associated with Moderna’s potential phase III data for a vaccine against human cytomegalovirus, which causes infant deafness, aren’t built into current prices and were likely to pass for now.
- We like the risk/reward towards COH following its 22% correction into our target zone, but the Moderna implications are enough to keep us on the sidelines.
MM is cautiously bullish toward COH around $280
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