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National Vision Banks on Contact Lens Sales Amid Coronavirus Woes

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On Sep 11, we initiated a research report on National Vision Holdings, Inc. (EYE - Free Report) . The company has been continuously benefiting from favorable industry trends. However, rising costs can exert pressure on the bottom line of this Zacks Rank #3 (Hold) company.

Over the past three months, National Vision’s shares have outperformed the industry it belongs to. The stock has gained 35.9% compared with the industry’s 8.2% rise.

National Vision exited the second quarter with better-than-expected results despite coronavirus-led economic woes. The company witnessed comparable growth on increased customer transaction in the last month of the quarter.

The company’s contact lens revenue growth was robust due to lesser impact of store closures on contact lens customer transactions. The contact lens category continued to see growth in average ticket resulting from increasing adoption of newer technology lenses at higher prices. This trend is expected to continue.

The extension of the partnership with Walmart looks encouraging. Further, in May, the company significantly improved its liquidity with a successful convertible note offering in the week following the earnings release. Currently National Vision is confident about its financial flexibility and liquidity.

However, the pandemic has been wreaking havoc on the economy and the impact on National Vision has been damaging as well. The company usually experiences a surge in unearned revenues in the last few days of each quarter. However, in the second quarter, net revenues decreased nearly 40% with 10% of this decline attributed to the timing of unearned revenues. Its impact on net revenues and profitability was significant in the second quarter as a result of store closures and lack of revenues in the final days of the first quarter that would have typically been recognized in the second quarter.

Further, due to uncertainties arising from the pandemic and its duration and impact on the United States, the company could not provide its 2020 financial outlook. However, the company anticipates incremental COVID-19 expenses of approximately $8 million during the year.

National Vision plans to continuously spend on television advertising and digital marketing in order to maintain the comps growth trend. Rising costs have however been putting pressure on its bottom line.

Key Picks

Some better-ranked stocks from the broader medical space are QIAGEN N.V. (QGEN - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Hologic, Inc. (HOLX - Free Report) .

QIAGEN’s long-term earnings growth rate is estimated at 22.3%. It currently sports a Zacks Rank #1. (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 15%. It currently carries a Zacks Rank #2 (Buy).

Hologic’s long-term earnings growth rate is estimated at 15.5%. The company presently sports a Zacks Rank #1.

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