Competitve threats remain for Cochlear

Cochlear (COH, Reduce, Price Target A$79.93) - An AFR article out last week highlights growing competition for cochlear implants (CIs) in China, with COH optimistic its product innovation and sector growth, especially in the ageing adult market, will allow it to offset these competitive threats and drive sales. Although shares are down 12% since we resumed coverage with a Reduce rating back in March (vs ASX200 c5%) and are flirting around our A$79.93 price target, we see further downside risk and are hesitant to call a bottom. We continue to lack confidence in strong underlying CI growth, with ongoing competitive pressure limiting earnings visibility and share levels extended (FY16 PE 25.8x vs 23x 5 year average; EV/EBITDA 16.9x vs 15x 5 year average).