Jefferies Adjusts Ratings on Hearing Aid Companies#

Jefferies, a financial services firm, has made significant changes to its ratings on two leading hearing aid manufacturers, Demant and Sonova. The firm upgraded Demant from a 'hold' to a 'buy' and downgraded Sonova from 'hold' to 'underperform'. This shift is based on what Jefferies describes as an unsustainable valuation gap and diminishing growth prospects for Sonova.

Price Targets and Valuation Insights#

Jefferies set a price target for Demant at DKK245, suggesting a potential increase of 32% from its recent closing price of DKK186.20. In contrast, Sonova's target was lowered to CHF155 from CHF215, indicating an expected decline of 18% from its last price of CHF189.35.

The analysis reveals that Demant is currently trading at about a 20% discount compared to Sonova, based on a measure called the forward price-to-earnings (P/E) ratio, which looks at future earnings. Historically, this discount has averaged around 5%. Conversely, Sonova has been trading at a 25% premium to Demant, compared to a historical average of about 10%.

Demant's Growth Drivers#

Jefferies utilized a discounted cash flow (DCF) model to value Demant, applying an 8% weighted average cost of capital (WACC) and a 2% growth rate for the long term. This analysis yielded a target price of DKK245 per share. Jefferies also forecasts Demant's sales for the fiscal year 2026 to be DKK25.6 billion, with an adjusted earnings before interest and taxes (EBIT) of DKK4.38 billion.

Key factors contributing to Demant's growth include the launch of the Oticon Zeal ITE-R device in the U.S. and a cost-saving program expected to save DKK500 million annually, which will affect around 700 employees.

Sonova's Challenges and Future Outlook#

For Sonova, Jefferies revised its sales estimates for fiscal years 2025 and 2026 to CHF3.85 billion and normalized EBITA to CHF762 million. This reflects a slight decrease from previous estimates. Two positive factors for Sonova include its re-entry into Costco and a pricing increase from the U.S. Veterans Affairs, both of which are expected to support sales growth.

Sonova is set to hold a strategy update on March 23, where leadership will discuss future plans, particularly regarding its focus on the Asia-Pacific region, which could enhance sales but may also raise concerns about profitability.