The Cochlear Limited (ASX: COH) share price traded 19% lower on Monday following the release of news it would suspend its profit guidance for FY20.
For context, the broader Australian share market or S&P/ASX 200 (ASX: XJO) closed at 5002 points, down 9.7%. Also, keep in mind that on Friday Cochlear shares rose over 10%.
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About Cochlear
Cochlear is one of the world’s leading medical businesses. Cochlear designs, manufactures and supplies the Nucleus cochlear implant, the Hybrid electro-acoustic implant and the Baha bone conduction implant.
Graeme Clark invented the first device in 1982, allowing first-user Graham Carrick to hear for the first time for 17 years. Some of the most recent modifications allow users to play sound from their phone directly into their implant.
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Cochlear Limited’s profit guidance
In an announcement to the market on Monday, Cochlear announced it has withdrawn its profit guidance on account of the Coronavirus impacts.
In its statement to the ASX, CEO Dig Howitt said a lot has changed since its previous update less than one month ago.
“Since the update we provided on 18 February, we have seen COVID-19 spread rapidly across many countries,” Howitt noted. “We are now seeing a growing number of health authorities either recommend or enforce surgery deferrals.”
“Over the weekend, the US Surgeon General has urged hospitals and healthcare systems to consider suspending elective surgical procedures in an effort to reduce the strain on the healthcare system until the rate of infection of COVID-19 is under control. We expect these actions to impact surgeries in our major markets, particularly the US and Western Europe.”
Cochlear: a rebound in wait?
While uncertainty abounds, on the bright side of things Cochlear noted some green shoots were emerging in China, where surgeries have begun to recommence implant procedures.
This has been backed by resumed production of materials and components, although the company says it has three months of inventory on hand.
“As the global leader in implantable hearing solutions, we continue to see the long-term opportunity to grow the hearing implant market. We expect that many of the delayed surgeries will progress once hospitals resume normal operations,” Howitt added.
“Our view to the longer-term opportunity to grow our markets remains unchanged and we have a strong balance sheet that enables the business to weather the expected short-term decline in demand caused by COVID-19.”
What Happens Next?
Cochlear shares were last seen trading at $174.51, giving the company a market capitalisation slightly more than $10 billion. Cochlear remains one of the world’s leading hearing implant makers, alongside Phillips and others.
One question for investors now is, whether or not the company’s customers can rely on government and health insurance funding for its expensive devices post COVID-19.
It’s something we’ll be watching closely, and incorporating into any company valuation.
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