Sonova upgraded to “outperform” as valuation lags market and pricing gains

Investing.com -- Bernstein has upgraded Sonova Holding AG (OTC:SONVY) to “outperform” from “market perform,” citing a divergence between improving fundamentals and declining valuation, in a note dated Friday. 

Shares of the Swiss company were up 2.9% at 07:44 ET (11:44 GMT).

The brokerage raised its price target  to CHF 278 from CHF 270, implying a 21% upside from the current share price of CHF 230.

Sonova shares have fallen 18% since mid-May, pushing its valuation to 21x FY25/26 earnings, down from 25x. This places it near 10-year historical lows despite recent operational improvements.

A key driver behind the upgrade is stronger-than-expected pricing under the new U.S. Department of Veterans Affairs (VA) contract. 

Sonova secured a 26% weighted average price increase, led by 21% for its Infineo RIC and 31% for the Sphere RIC. 

Bernstein estimates the uplift will add 2.6% to wholesale organic growth and 5.7% to EBITA in FY25/26.

The company has also re-entered Costco (NASDAQ:COST), the largest U.S. private hearing aid retailer. Bernstein expects this return to boost wholesale revenues by 3.6%, total revenues by 1.7%, and EBITA by 2.6%.

Market conditions have also improved. Following a decline in Q1, the U.S. commercial market posted 3.5% unit growth in Q2 2025. 

Germany showed unit growth above 6%, while France saw double-digit gains. Bernstein revised its market growth assumption for Sonova’s fiscal year from 2% to 4%, supporting upward revisions in revenue projections.

Additional upside may come from Sonova’s expected launch of an in-the-ear rechargeable (ITE-R) device in time for the VA’s November buying window. 

The company currently lacks presence in the ITE-R segment, which accounts for 12% of VA unit sales. A 10% share in this category could add up to 20 basis points to group revenue growth.

Sonova’s FY25/26 adjusted EPS estimate was increased to CHF 10.81 from CHF 10.50. For FY26/27, the forecast rose to CHF 11.80.

EBITA is projected to grow from CHF 749.7 million in FY24 to CHF 959.4 million in FY26, representing a 13.1% CAGR.

The company’s adjusted operating margin is expected to improve from 20.9% in FY24 to 22.5% in FY26. 

Net earnings are forecast to grow from CHF 644.2 million in FY24 to CHF 695 million in FY26. Net debt/EBITDA is projected to decline from 0.91x in FY24 to 0.28x by FY26, while ROIC improves from 17.3% to 19.9%.

Bernstein noted the only growing headwind is currency impact, now estimated to reduce revenue by 5.6% and EBITA by 6.6%, compared to previous estimates of 4% and 5–6% respectively in May.

The brokerage highlights that Sonova’s current valuation mirrors levels seen in 2023, a period marked by its exit from Costco and product-related challenges. 

In contrast, the company now benefits from average selling price tailwinds, a strong product cycle, and renewed access to key distribution channels.