Sonova shares fall 2% as UBS flags stretched valuation despite brighter outlook

Shares of Swiss hearing aid maker Sonova Holding AG (SIX:SOON) were down over 2% after UBS cut its rating to “neutral” from “buy,” saying a 35% rally since July leaves limited room for further gains.

UBS said the shares trade at 24 times expected earnings for the next 12 months, the highest premium to the European medical technology sector in a decade. 

That premium is more than 35%, versus an average of about 0-5% over the past five to 10 years.

The shares also trade at a 30% premium to the broader market, versus a historical range of 25-35%, and at a 10% premium to peer Demant, versus 8-15%.

UBS said that leaves less room for the shares to rise further on valuation in the near term, even as the company’s earnings outlook improves.

UBS raised its 12-month price target on Sonova to CHF293 from CHF273, mostly because it rolled its valuation model forward and lowered its discount rate to 7.6% from 7.8% on a lower Swiss risk-free rate. A smaller part came from higher earnings estimates. The shares were at CHF285.80 on Nov 2.

UBS raised its core operating profit estimates by 1% for the year to March 2027 and 2% for fiscal 2028-29. 

It cited peer results for the calendar second and third quarters that pointed to steadier U.S. volumes and higher selling prices at wholesale and retail level, as well as the new Integro sound processor, which it expects to add to cochlear implant growth from the second half now that its roll-out has been announced.

UBS’s earnings forecasts are 2-5% above consensus in constant currencies. It expects Sonova to raise full-year guidance when it reports half-year results on Nov 12, lifting revenue growth to 7-9% from 5-8% and core EBIT growth to 9-11% from 7-10%, at constant exchange rates. It forecasts about 10% core EBIT growth for the year at constant currencies.

UBS said fund managers largely anticipate an upgrade to estimates, based on feedback and a gain of more than 10% in the shares over the past month.

UBS forecasts earnings per share growth of 10.5% a year over the next four years, against a sector average of 11%. It said that the small gap makes it hard to justify a lasting move to the current premium.

UBS sees more attractive risk and reward in Straumann and Fresenius SE, both rated buy, citing clearer near-term catalysts and cheaper valuations.

UBS forecasts a 4.1% total return on Sonova shares including dividends, below its 5.3% market return assumption. Its scenario range runs from CHF240 to CHF350, measured against CHF281.80 on Oct 29.