COH – Citi rates the stock as Sell

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Cochlear has been found guilty of patent infringement by the LA District Court in the suite brought by Advanced Bionics. Cochlear will seek to overturn the verdict. Citi estimates, should the company be unsuccessful, that it will need to increase its borrowing facility to pay the damages bill, which could be as much as US$400m.

Citi is dubious about the company’s ability to pay out large dividends by increasing borrowing, suspecting that, if the challenges are more long-term than foreseen, the balance sheet deterioration could do more harm to shareholders, particularly if any appeal is unsuccessful.

The Sell rating and $54.80 price target are maintained.

Sector: Health Care Equipment & Services.

Target price is $54.80.Current Price is $57.85. Difference: ($3.05) – (brackets indicate current price is over target). If COH meets the Citi target it will return approximately -6% (excluding dividends, fees and charges – negative figures indicate an expected loss).

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