Why is this broker saying to sell Cochlear (ASX:COH) stock in 2022?

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Shares in a hearing technology player Cochlea Limited (ASX:COH) are on the rise today and are up 0.46% in the green at $215.44 a share at the time of writing.

Unlike many of his S&P ASX 200 Index (ASX:XJO), Cochlear’s stock price has posted gains over the past 12 months and into the new year. This year, Cochlear shares are flat, while they were up 8% a year ago.

Despite their positive momentum on the chart, one broker doesn’t see the prospects for Cochlear stock as rosy in 2022, urging clients to either sell or reduce their positions.

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Why is this broker saying to sell Cochlear stock?

Analysts at RBC Capital Markets are cautious on the hearing specialist amid slowing revenue growth and the company’s questionable valuation.

The broker has started coverage of the Cochlear stock price and expects it to underperform in 2022. He notes that his revenue growth has been declining recently, along with other growth metrics.

That means Cochlear doesn’t have the valuation premium it once had, as cash flows into the future don’t appear to be as large as first thought.

Additionally, the market for hearing aids for seniors is becoming increasingly saturated, which means Cochlear risks losing market share to competitors in this space, according to RBC.

RBC is valuing the company at a significantly discounted price of $149 per share, suggesting a 31% downside potential at the time of writing.

It’s not all bearish – a broker moves up to neutral

Meanwhile, analysts at fellow broker Morgan Stanley note that Cochlear’s full-year guidance appears a bit soft, even given the softening sales outlook.

The broker expects Cochlear to offset declining sales with service and upgrade revenue, which it says will remain strong in FY22.

For comparison, Cochlear grew services revenue 21% year over year and acoustics revenue was 40% higher than the same period last year.

Given its healthy view of the stock, Morgan Stanley upgraded its rating from underweight to even weight to reflect more positive sentiment.

Cochlear is valued at $208 per share after raising its price target by 16% in a recent announcement.

The consensus price target for Cochlear is $221 per share, according to Bloomberg Intelligence, meaning the 21 analysts covering the stock are still in bullish sentiment.

In fact, 42.1% have it to buy, another 42.1% currently own it, and the remaining 15.8% are in favor of selling Cochlear stock.

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