Sonova: Investing in the Future of Hearing Health

Sonova is one of the world’s leading hearing care companies, offering everything from hearing aids and cochlear implants to in-store services through its large network of retail clinics. With strong brands like Phonak and a growing presence in important markets, Sonova combines advanced technology with direct contact to consumers. As more people around the world need hearing care due to aging populations and rising awareness, the company continues to invest in new products, digital tools, and better service. The question is: Should this global hearing care provider be part of your long-term portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Sonova at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Sonova, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Sonova Holding AG is a Swiss-based global leader in hearing care solutions. Founded in 1947 and headquartered in Stäfa, the company originally operated under the name AG für Elektroakustik before becoming Phonak in 1977 and later adopting the name Sonova Holding in 2007. Sonova develops, manufactures, and sells a wide range of products and services that improve the lives of people with hearing loss, spanning from hearing aids and cochlear implants to audiological care services, personal audio devices, and wireless communication systems. The company operates through four distinct but interconnected business segments. The Hearing Instruments segment includes its flagship brands Phonak and Unitron, which deliver high-performance hearing aids and wireless technologies. These products incorporate advanced features such as AI-powered background noise suppression, real-time speech separation, Bluetooth connectivity, and rechargeable battery systems. The Audiological Care segment is made up of a network of more than 3.600 clinics in 20 countries under the AudioNova and other regional brands. These clinics offer personalized care, from diagnostics to fittings and aftercare, supported by a workforce of over 7.000 trained professionals. The Consumer Hearing segment operates under the licensed Sennheiser brand, offering premium headphones, earbuds, and early-stage hearing solutions that target both audiophiles and first-time users. Finally, the Cochlear Implants segment, led by Advanced Bionics, provides life-changing technology for individuals with profound hearing loss, including cochlear implants, sound processors, and companion apps for remote support and training. Sonova’s competitive moat is built on several strengths: technology leadership, vertical integration, brand strength, and global scale with local adaptability. Its leadership in technology stems from years of investment in chip design, AI, and sound processing, resulting in products like the Sphere Infinio platform that enhance speech clarity in noisy environments. Vertical integration allows Sonova to control both product development and distribution, ensuring consistent service and faster feedback loops. Well-known brands like Phonak, Sennheiser, and Advanced Bionics reinforce consumer trust and loyalty. At the same time, Sonova’s global presence and ability to adapt to local markets support its long-term growth and resilience.

Management

Arnd Kaldowski serves as the CEO of Sonova, a position he has held since April 2018. He joined the company in 2017, bringing with him a strong background in healthcare, innovation, and operational excellence. Before joining Sonova, he spent nearly a decade at Danaher Corporation, where he held several leadership positions, including Group Executive of the Diagnostics Platform and President of Beckman Coulter Diagnostics. Earlier in his career, he served as Senior Vice President of Point-of-Care Solutions at Siemens Medical, Investment Director at Atila Ventures, and Manager at the Boston Consulting Group. Arnd Kaldowski holds a Master of Science in Physics from the Technical University of Darmstadt, Germany, and an MBA from INSEAD in Fontainebleau, France. His career has been marked by a consistent focus on accelerating sales, driving product innovation, and strengthening commercial capabilities. At Danaher, he led major initiatives in M&A, new product development, and productivity improvement, experience that translated well into his leadership at Sonova. Under his tenure, Sonova has deepened its focus on technology and innovation, while expanding globally through strategic acquisitions. These include the purchase of HYSOUND in China, which added 200 retail stores and 650 employees to Sonova’s footprint, and the acquisition of Sennheiser’s Consumer Division, which enabled Sonova to enter the growing market for premium audio and early-stage hearing devices. His emphasis on digitalization, customer proximity, and cross-functional excellence has helped position Sonova as a leader in both hearing care and consumer audio. In May 2025, Arnd Kaldowski announced his planned departure as CEO, effective September 2025. He will be succeeded by Eric Bernard. As he prepares to step down, Arnd Kaldowski leaves behind a more diversified, technology-driven Sonova with an expanded global presence and strong foundations for continued growth.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Sonova has achieved a ROIC above 10% every year for the past decade. Sonova has achieved a ROIC above 10% every year for the past decade. It has consistently delivered strong returns by combining high-quality products with efficient operations. The company focuses on developing advanced hearing solutions that customers are willing to pay a premium for. These products, like AI-powered hearing aids, generate strong profits. At the same time, Sonova runs a disciplined business. It keeps production costs low by manufacturing in cost-effective locations and avoids tying up too much money in inventory or daily operations. Because Sonova controls both product development and distribution - selling through its own stores and clinics - it can move quickly, maintain high margins, and stay close to its customers. This combination of innovation, cost control, and vertical integration helps the company get more out of every franc it invests. Sonova’s ROIC dipped slightly in fiscal years 2024 and 2025 compared to its peak in 2023 due to a few temporary factors. First, the launch of its new Infinio platforms came with higher upfront costs for marketing, training, and production, which put short-term pressure on margins. Second, a strong Swiss franc reduced the value of international earnings when converted back, even though business performance remained solid in local currencies. Third, the company increased investments in manufacturing and distribution, raising its capital base before those investments had fully paid off. These short-term effects held back ROIC, but the company expects returns to improve as the new products gain traction and efficiency increases.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Sonova’s equity decreased in fiscal years 2022 and 2023 mainly because of its share buyback program, which reduced the number of outstanding shares and lowered overall equity. During this period, the company also canceled a portion of its repurchased shares, further reducing its equity base. In fiscal years 2024 and 2025, equity began to rise again as the buyback program concluded and Sonova retained a larger share of its earnings. Strong profitability in these years helped rebuild equity, pushing it close to an all-time high by 2025 despite some ongoing currency headwinds.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising that Sonova has achieved positive free cash flow every year over the past decade. In fiscal year 2025, free cash flow increased, supported by strong earnings and more disciplined spending on investments and acquisitions. However, margins have been lower in 2023, 2024, and 2025 compared to earlier years. This was largely due to higher tax payments linked to global tax rule changes, elevated costs related to product launches like the Infinio platform, and more cash tied up in areas such as inventory and customer payments. These factors put pressure on margins, even as the company maintained consistent cash generation. Looking ahead, margins are expected to recover as product launch costs decline and the company benefits from improved efficiency and stronger sales of its newer offerings. Sonova primarily uses its free cash flow to fund acquisitions and pay dividends. With free cash flow increasing, shareholders can reasonably expect higher dividends going forward, especially given the company’s payout ratio of around 40 percent. Sonova has also repurchased shares in the past but does not currently have a buyback program in place due to market uncertainty. However, management has indicated that a new program could be launched in the second half of the fiscal year. The free cash flow yield is now at its highest level since fiscal year 2020. While a yield below 5 percent suggests that the shares are still trading at a premium valuation, it does mark the most attractive level in more than five years. We will revisit valuation later in the analysis.

Debt

Another important aspect to consider is debt. It is crucial to assess whether a business carries a manageable level of debt that could reasonably be repaid within three years. This can be evaluated by dividing total long-term debt by earnings. After reviewing Sonova’s financials, I found that the company has the equivalent of 2,13 years of earnings in debt, which is well below the three-year threshold. This suggests that debt is not a concern when evaluating Sonova as an investment. It is also worth highlighting that management has handled debt prudently. Following the acquisitions of Sennheiser and HYSOUND, they prioritized reducing debt over repurchasing shares, a strategy I consider both responsible and shareholder friendly.

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Risks

Macroeconomic factors represent a notable risk for Sonova, particularly as they affect both consumer behavior and global operations. One area that has recently come under pressure is the Consumer Hearing segment, which includes premium audio products under the Sennheiser brand. Although this segment accounts for a relatively small share of overall revenue, it is more sensitive to shifts in discretionary spending and consumer sentiment. Weakness has been most apparent in the U.S. market, which represents around one-third of Sonova’s total revenue across all segments. In the U.S., a significant portion of hearing care purchases are paid out of pocket, especially in the private sector, making demand more vulnerable to changes in consumer confidence and inflation expectations. Economic uncertainty has also led many consumers to delay non-urgent purchases such as hearing aid replacements, and even a small shift in renewal timing can noticeably impact short-term sales. On the cost side, inflation has increased expenses for logistics, components, and wages, putting pressure on margins even though Sonova has some ability to raise prices. The company is also affected by currency movements, since it reports its results in Swiss francs but earns much of its revenue in US dollars and euros. This means that when exchange rates move, the value of Sonova’s foreign earnings can go up or down, even if the actual business performance in those markets stays the same. Currency changes can also affect the value of future sales and purchases made in other currencies. In addition, Sonova is exposed to trade policy changes, including tariffs on electronics from Asia and cochlear implants made in the US and shipped to countries like China. These macroeconomic risks - including inflation, currency fluctuations, tariffs, and consumer confidence - are largely outside Sonova’s control and can affect both revenue and profit.

Competition presents a serious long term risk for Sonova, particularly as the hearing care industry undergoes structural changes and becomes more crowded with both established players and aggressive new entrants. Traditional rivals such as Demant and WS Audiology continue to pose a strong threat with their advanced technologies, global scale, and well known brands, but the competitive landscape is evolving quickly. Emerging brands are increasingly targeting large retail and managed care partnerships, offering competitive pricing and attractive package deals that appeal to both retailers and end consumers. This has made it more difficult for Sonova to retain or regain key business contracts, especially when major retailers now have a broader set of alternatives. In some cases, Sonova has lost business when a competitor returned to a channel like managed care with stronger commercial terms. Pricing pressure is a key concern, as Sonova may be forced to match lower prices in order to stay competitive, which could weigh on profit margins at a time when costs are already rising due to inflation in logistics, wages, and components. Another growing challenge is the shift in distribution models. The hearing aid market has traditionally relied on audiologist led channels, but this is changing with the rise of direct to consumer sales, online platforms, and over the counter hearing aids in markets like the United States. If competitors manage to build a stronger presence in these newer, more scalable sales channels, Sonova could face declining visibility and reduced access to end users. At the same time, increased competition may put pressure on the company’s relationships with retail partners, which are vital to maintaining shelf space and brand visibility. Sonova must continuously demonstrate superior value through product innovation and service quality, but even with strong execution, the combination of pricing pressure, shifting sales channels, and contract competition creates a challenging environment that could limit growth and erode market share over time.

Regulatory risk is a significant concern for Sonova because the company operates in a highly controlled industry where compliance with national and international standards is essential for maintaining market access and reputation. As a manufacturer of medical devices such as hearing aids and cochlear implants, Sonova must meet strict safety, quality, and performance requirements set by authorities like the US Food and Drug Administration, the European Medicines Agency, and equivalent bodies in other countries. These regulations govern not only product approval but also manufacturing processes, labeling, marketing, and post-market surveillance. Changes in these rules can lead to higher compliance costs, delays in product launches, or even the need to redesign existing products. In addition to product regulations, Sonova is affected by policies around reimbursement and public tenders, which play a major role in making hearing aids accessible in many markets. If a government or insurer reduces reimbursement levels, patients may face higher out-of-pocket costs, potentially reducing demand and creating downward pressure on prices. Similarly, changes in how public tenders are awarded. such as stricter cost criteria or new eligibility requirements, can threaten Sonova’s ability to win or renew large contracts, particularly in countries with centralized healthcare systems. The regulatory landscape is also constantly evolving. Even in regions where current policies are stable, future changes could introduce new documentation, testing, or certification requirements. Compliance is not only a matter of securing initial approvals but also of ongoing monitoring and adaptation. A failure to meet these standards at any stage could result in recalls, legal liabilities, or reputational damage. For a global company like Sonova, which relies on a consistent ability to innovate and distribute across multiple jurisdictions, staying ahead of regulatory changes is critical to protecting margins, avoiding operational disruptions, and sustaining long-term growth.

Reasons to invest

Favorable global trends provide a strong foundation for long-term investment in Sonova, as the company is well positioned to benefit from multiple structural drivers that support steady growth in the hearing care industry. One of the most powerful forces is the aging population worldwide. As people live longer, age-related hearing loss becomes more common, and with many older adults staying active in work and social life, the demand for hearing solutions continues to rise. The World Health Organization projects that by 2050, one in four people globally will have some level of hearing loss, with hundreds of millions requiring care. Alongside demographic shifts, awareness of hearing health is improving. In many developed markets, governments are expanding reimbursement programs, helping to reduce the financial barriers to adoption. At the same time, the stigma around wearing hearing aids is fading, thanks to smaller, more discreet designs and better technology. These changes are encouraging more people to seek treatment earlier, boosting demand. Emerging markets also offer substantial growth potential, especially in countries like China where hearing aid adoption remains low but household incomes and healthcare spending are rising. Currently, only a small fraction of those with hearing loss in China use hearing aids, but as public health priorities shift and access improves, that figure is expected to grow significantly. Additionally, untreated hearing loss comes with broader societal costs, including lower productivity, higher healthcare expenses, and increased risks of depression and cognitive decline. Addressing these challenges through hearing care is gaining recognition as a healthcare priority, which supports continued investment in the sector. Sonova, with its strong global presence, advanced technology, and expanding footprint in both mature and emerging markets, stands to benefit from these favorable long-term trends.

New products and continuous technological innovation are among the most compelling reasons to invest in Sonova, as they are central to the company’s ability to gain market share, maintain pricing power, and meet rising consumer expectations. Sonova has established a consistent rhythm of launching new platforms every one to two years, each time delivering meaningful improvements in performance, user experience, and functionality. Its most recent launch, the Phonak Audéo Sphere Infinio, powered by the proprietary DEEPSONIC chip and ERA connectivity platform, has set new benchmarks in sound clarity and speech separation in noisy environments. The product has received stronger early adoption than any of its predecessors, including the highly successful Marvel, Paradise, and Lumity lines, and has been praised by both hearing care professionals and end users. Customer satisfaction and return rates have also improved, with both fewer technical issues and lower product returns, signaling real-world performance gains. Sonova's strategy blends breakthrough launches with regular software-based upgrades that require minimal additional investment. This approach allows the company to stay top of mind for audiologists and consumers without needing to overhaul hardware each year. Upcoming product introductions, including new rechargeable in-the-ear models and enhancements to the Infinio and Sphere platforms, are expected to build on this momentum and contribute meaningfully to revenue growth. The company’s disciplined and collaborative R&D model, developed over years of refinement, continues to support innovation that translates into commercial success. In a market where professional recommendations drive a large share of purchases, consistently offering newer, better-performing solutions is critical. Sonova’s ability to stay ahead of competitors through its innovation cycle, both with major platform launches and smaller, customer-focused improvements, positions it well for sustained growth.

Sonova’s Audiological Care segment is a compelling reason to invest in the company, as it not only enhances profitability but also deepens its connection with consumers and strengthens its competitive position. Through a global network of approximately 3,600 stores across 20 key markets, Sonova delivers expert, personalized hearing care directly to consumers. This retail footprint allows the company to benefit from both wholesale and service-based revenue, while maintaining control over pricing, product presentation, and customer experience. By owning the customer journey end to end, Sonova secures higher margins and stronger brand loyalty. Strategic acquisitions like Alpaca Audiology in the U.S. and HYSOUND in China have expanded its presence in high-growth regions and further solidified its vertically integrated model. The company’s omni-channel approach, which blends in-person care with digital tools like the MyAudioNova and SilentCloud apps, ensures accessibility and consistency across touchpoints. Behind the scenes, Sonova has made meaningful structural improvements, such as streamlining its store network, optimizing local operations, and reducing lead generation costs, all while maintaining steady same-store growth. A critical element of the segment’s long-term strength is its Audiological Care Academy, which addresses the global shortage of audiologists by training and certifying thousands of hearing care professionals each year, particularly in underserved regions. This investment in talent ensures a high standard of care and positions Sonova as an employer of choice in a competitive field. In a market where many customers delay treatment or are hesitant to seek help, Sonova’s in-house lead generation capabilities and consumer-first model help build trust and encourage earlier adoption of hearing solutions. As more consumers embark on their “hearing journey,” Sonova’s ability to guide them through personalized care, innovative products, and a seamless experience makes the Audiological Care segment a powerful engine of sustainable, long-term value.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 9,04, which is from 2025. I have selected a projected future EPS growth rate of 11%. Finbox expects EPS to grow by 11,2% in the next five years. Additionally, I have selected a projected future P/E ratio of 20, which is twice the growth rate. This decision is based on Sonova's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be CHF 139,59. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Sonova at a price of CHF 69,79 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 794, and capital expenditures were 90. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 63 in our calculations. The tax provision was 105. We have 59,60 outstanding shares. Hence, the calculation will be as follows: (794 – 63 + 105) / 59,60 x 10 = CHF 140,26 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Sonova's Free Cash Flow Per Share at CHF 11,81 and a growth rate of 11%, if you want to recoup your investment in 8 years, the Payback Time price is CHF 155,47.

Conclusion

I find Sonova to be an intriguing company with capable management, though it is worth noting that a new CEO will take over this fiscal year. The company has built a strong moat through technology leadership, vertical integration, brand strength, and a global presence that adapts well to local markets. It has consistently delivered a high return on invested capital over the past decade. While the levered free cash flow margin has declined from previous highs, it is expected to recover in the coming years. Macroeconomic factors are a risk because they influence consumer behavior, particularly in the United States where many hearing care purchases are paid out of pocket. Inflation, currency fluctuations, and trade policy changes can increase costs and reduce reported earnings, placing pressure on both revenue and margins. Competition is another concern, as both established players and new entrants are targeting key retail and managed care partnerships with lower prices and compelling deals, making it harder for Sonova to retain contracts. The shift toward direct-to-consumer models and online sales also threatens traditional distribution channels, putting additional pressure on market share and profitability. Regulatory risks are significant due to the company’s need to comply with evolving safety, quality, and reimbursement standards across different jurisdictions. Changes in these regulations can increase costs, delay product rollouts, or limit market access, and any compliance failure could lead to legal issues, recalls, or lost business. On the positive side, favorable global trends such as population aging, greater awareness of hearing health, and improved access to care in emerging markets are driving long-term demand. Sonova is well positioned to benefit from these tailwinds given its strong technology, expanding presence in high-potential regions, and growing recognition of hearing loss as a public health issue. The company’s continued innovation is another key strength, as it regularly introduces new platforms with significant improvements in sound quality, functionality, and user satisfaction. Its most recent product launches have shown strong early adoption, and Sonova’s ability to balance major innovations with smaller software-based upgrades helps it remain top of mind for hearing care professionals. Finally, Sonova’s Audiological Care segment enhances profitability and consumer loyalty through a network of over 3.000 stores in 20 markets, combining direct sales with expert service. This vertical integration allows Sonova to own the full customer experience, maintain pricing power, and generate stable, higher-margin revenue. With consistent investment in talent development, digital tools, and operational efficiency, this segment plays a key role in Sonova’s long-term strategy. I believe Sonova is a high-quality company, and buying shares at the Payback Time price of CHF 155 could offer a compelling long-term investment opportunity.

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