Healthcare stocks are bouncing. Is it time to give CSL and Cochlear a second chance?

Healthcare stocks have followed a far-too-familiar and painful playbook. You liked it at $100, so you loved it at $90, then $80, then $70, and before you know it you've averaged down to the point of no return.

But the past couple of weeks have shown a serious change in character for the downward-spiralling sector, with the S&P/ASX 200 Healthcare index up 17% since 3 June. For those who love charts and technicals, it's managed a meaningful move above the 50-day moving average (green), the first time since August 2025.

For the past year the index has moved like clockwork: a dramatic one-day selloff, prolonged post-selloff weakness, an oversold bounce into the 50-day, then another leg lower.

S&P/ASX 200 Healthcare Index daily chart (Source: TradingView)

The past few days have shown some serious strength for two key healthcare names, the old guard CSL (CSL) and Cochlear (COH), which have gained 23% and 28%, respectively, since 3 June.

In the grand scheme of things, it's a bounce for ants. CSL and Cochlear are still down 51% and 59.5% respectively over the last twelve months. But bottoming is a process, and it starts with little wins like reclaiming the 50-day, and a short-term moving average like the 20-day (red) starting to slope up.

Over on Wall Street, the S&P 500 Healthcare Index has recorded two straight all-time highs, though it's up just 3.3% year-to-date. The broader healthcare index keeps making headway while our two old-guard names have given a poor impression of the sector they belong to.

Macquarie isn't buying the bounce

The charts may be turning, but Macquarie remains sceptical. In a 29 June note, the broker kept CSL and Cochlear at Neutral and lifted its price targets only marginally higher. After recent share price gains, both targets now sit around where the stocks trade.

• Cochlear (COH): Neutral rated, with target increasing to $119.00 from $115.00

• CSL (CSL): Neutral rated, with target increasing to $114.00 from $111.00

The caution on Cochlear comes down to earnings, where Macquarie ties implant demand to US consumer confidence, and the Americas account for about half of group revenue. The University of Michigan sentiment index hit an all-time low of 44.8 in May before a small June recovery as US fuel prices eased. Macquarie now sees FY26 underlying profit at about $307 million, below the midpoint of Cochlear's $290-330 million guidance, a range the company itself cut by around 30% back in April.

CSL's latest problem is a regulatory one. Europe's medicines regulator has recommended pulling marketing approval for Tavneos, a kidney-disease drug CSL sells outside the US, over concerns about how its trial data was handled. Macquarie now models a roughly 65% drop in Tavneos revenue from FY27, flowing through to EPS cuts of 3% in FY27 and 4% in FY28.

The drug is small at about 1% of group revenue, but it adds to a list of pressures that already includes generic competition and weaker margins at the Vifor arm. Macquarie is applying a 20% discount to its valuation to account for inventory issues in immunoglobulins, softer albumin demand in China and uncertainty over management.

CSL now trades on a price-to-earnings multiple of around 13x, a level it last saw around 2010. However, cheap is the wrong word for it. The metrics that earned CSL its premium have come down a long way: i) Return on equity ran in the 30-40% range through the late 2010s and now sits closer to 16%; ii) Return on assets has roughly halved over the same stretch; and iii) Net profit, which used to compound at a double-digit rate, is set to fall about 4% in FY26 on Macquarie's numbers, with the analysts penciling in 4% adjusted earnings growth in each of FY27 and FY28.

The bottom line

Local healthcare stocks are staging an indicative bottom, and it's forming against an awkward backdrop. The healthcare and biotech indices on Wall Street are trading at record highs, while closer to home, defensive and consumer-facing sectors like Staples, Healthcare and Discretionary have caught a bid, all up 12-13% in the past month.

Still, both CSL and Cochlear remain in a steep downtrend, trading 38% and 53% below their key 200-day moving averages. Reclaiming the 50-day is a start but much more strength is needed. And on Macquarie's numbers, the earnings recovery needed to justify it isn't there yet.