Sonova's Hearing Instrument Demand Remains Suppressed

We are maintaining our fair value estimate of CHF 174 per share for narrow-moat Sonova as the hearing instrument market in the United States and large countries that imposed strict lockdown measures to combat the coronavirus pandemic lags the global recovery. Despite a rebound in certain markets, such as Germany, where hearing instrument demand increased between 11% and 37% year over year for June through August (suggesting pent-up demand), the largest market for the company, the U.S., remains sluggish. The U.S. Veteran Affairs, or VA, channel saw continuing declines in the summer months, with unit sales down between 42% and 64%, and slightly improving in September (down 25%). The U.S. alone accounts for nearly one third of Sonova’s revenue in fiscal 2020 with the VA contributing heavily. Our previous fiscal 2021 revenue outlook remains roughly in line with the newly published management guidance and we view shares as slightly overvalued.