Cochlear Limited: Modest revenue guidance looks beatable, but untested cost execution needed to mitigate shallower GM profile; reiterate Neutral

Research evidence excerpt

J P M O R G A N

Asia Pacific Equity Research

19 August 2026

Cochlear Limited

Modest revenue guidance looks beatable, but untested

cost execution needed to mitigate shallower GM profile;

reiterate Neutral

Neutral

COH.AX, COH AU

Price (17 Aug 26):A$131.25

▲Price Target (Jun-27):A$148.40

Prior (Jun-27):A$119.40

COH is a cash-generative business that should experience a cyclical recovery through

FY27. We are highly tempted to consider the FY27 revenue guidance for +LSD as

conservative, but there are still too many issues in too many markets for us to be

confident (JPMe +4%), and commentary today did not confidently convey that the

company can return to its +10% revenue growth target any time soon. Management

does still target the 18% NPAT margin over the medium-term and, importantly, stated

that it does not need GM to return to prior levels in order to achieve it (JPMe: +5%

revenue CAGR FY26-29E; NPAT margin 16.6% by FY29E). COH is in a

transitionary phase where Opex reduction efforts are generating a high proportion of

earnings growth, which is not typically synonymous with a stock trading at 28x 12m

forward P/E for 12% EPS CAGR FY26-29E (and +0% EPS CAGR FY25-28). For

FY27, we forecast a touch ahead of new guidance (revenue +4%; NPAT A$355m vs.

guidance of A$330-350m), but we expect the long-term revenue CAGR to settle

around 5-6%, and hence do not yet see enough value at current valuations to take a

more constructive view on the shares. We increase our Jun-27 PT to A$148.4;

reiterate Neutral.

Mixed performance across markets; some headwinds appear structural.

2H26 marked the first of the last five HY reporting cycles where COH met

revenue expectations (albeit after a significant re-basing in April). The US is

showing signs of life (+4%), but Europe remains challenging (-8%) and China

is dilutive (driving -150bps of GM dilution in FY26 alone). In this context,

COH is still struggling to hold GMs steady, guiding to modest further pressure

in FY27E (70-71% vs. cons. 72%, having already declined from 76% in FY24).

Cost focus to support earnings through to solid LT revenue profile (+56%). If FY27 revenue guidance for low single digits (and flat gross margins)

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