Cochlear Limited (ASX: COH) is a medical device company that designs, manufactures and supplies implantable hearing solutions. Cochlear has provided more than 550,000 implantable devices, helping people of all ages to lead full active lives. Cochlear has a market capitalisation of A$9.97 billion.
Update on Coronavirus
The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The World Health Organisation data shows a total of 190,600 confirmed cases and 7,700 deaths globally. As of Thursday (19 March 2020), there have been 454 confirmed cases and 5 have died of COVID-19 in Australia. The Federal Government has upgraded its travel advice ban to a ‘Level 4’ for the entire globe due to the outbreak of COVID-19 on Wednesday (18 March 2020).
Update on share price
In the last month, Cochlear’s share price has fallen by 24.7%. Cochlear is currently trading at around A$173. The downward trend is due to several countries deferring surgeries as a result of the spread of COVID-19.
How COVID-19 effects Cochlear?
Due to the spread of COVID-19, a growing number of health authorities either recommending or enforcing elective surgery deferrals. This is resulting in substantial short-term negative impact on the number of implant surgeries undertaken. On Saturday (14 March 2020), the US Surgeon General has urged hospitals and healthcare establishments to consider suspending surgical procedures in order to reduce the strain on the healthcare system until the rate of infection of COVID-19 is under control. Further, Cochlear expects these actions from authorities will impact surgeries in major markets, particularly in the US and Western Europe. However, Cochlear expects many of the delayed surgeries to be recommended once hospitals resume normal operations.
Cochlear has implemented a range of strategies to respond to the reduction of surgeries including reducing all non-essential spending and capital expenditure for the balance of FY20. Additionally, Cochlear will also implement a hiring freeze during this disruption and there are no plans to reduce the workforce.
However, after the delay in surgeries during February in China, a small but growing number of surgeries have recommenced over March. Cochlear’s Chinese suppliers have resumed production of components and the business currently possesses at least three months of inventory to enable continued supply of products to customers.
What is the outlook for Cochlear?
Based on year to date results, Cochlear has been on track to deliver earnings guidance driven by strong growth in implant sales across the developed markets. However, Cochlear now expects to experience a decline in sales in the short-term. Due to the uncertainty surrounding the impact of COVID-19 in terms of the extent and duration of the reduction in surgeries and the ability for recipients to access sound processor upgrades places the Cochlear in an unfavourable position. Consequently, Cochlear is not able to provide earnings outlook and as a result Cochlear withdraws its earnings guidance for FY20.
On a positive note, Cochlear possesses a conservative balance sheet and headroom in existing debt facilities. Further, the global leader in hearing solutions is confident the business can arrange an increase in debt facilities to assist in meeting future cash requirements during this period. Furthermore, the strong balance sheet enables Cochlear to withstand the expected short-term decline in demand caused by COVID-19.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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