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Here's Why You Should Retain Alcon (ALC) Stock for Now
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Alcon (ALC - Free Report) is well-poised for growth in the coming quarters, backed by solid demand, strong commercial execution and pricing improvements across the Surgical and Vision Care franchises. In the first quarter, the company introduced Total30 for astigmatism. Core gross margin expansion in the quarter is encouraging. However, escalated costs and a tough competitive space do not bode well for Alcon.
In the past year, this Zacks Rank #2 (Buy) stock has increased 19.7% compared with the 16.4% growth of the industry and a 19.1% rise of the S&P 500 composite.
The renowned pharmaceutical and medical device manufacturer has a market capitalization of $38.58 billion. Alcon projects a long-term estimated earnings growth rate of 14.9% compared with 15.2% of the industry. ALC’s earnings surpassed estimates in three of the trailing four quarters and matched the same in one, delivering an average surprise of 8.85%.
Let’s delve deeper.
Upsides
Strong Prospects for Vision Care: In the first quarter of 2023, Vision Care reported double-digit growth, backed by the performance of both contact lenses and ocular health. In contact lenses, Alcon gained from its expanded product portfolio, which now includes sphere, toric and multifocal options for value, mainstream and premium customers in daily and reusable categories. ALC witnessed share gains, driven by the new toric product launches, including Precision1, Total30 and Dailies Total1.
Ocular health grew 15% compared to the prior-year quarter. Growth was primarily driven by the portfolio of eye drops, including acquired ophthalmic pharmaceutical products and price increases.
Image Source: Zacks Investment Research
Surgical Business Drives Growth: Total Surgical (consisting of Implantables, Consumables and Equipment/Other) recorded sales growth of 8% at CER. In Implantables, the company continued with its ATIOL (Advanced Technology Intraocular Lens) market leadership for another quarter, with nearly half of the global market and two-thirds of the market in the United States despite increasing competitive activity.
In Consumables, first-quarter sales were driven by favorable market conditions and pricing. In equipment, sales increased year over year on the continued strong demand for cataract and Vitreoretinal devices, particularly in international markets as the company upgraded and expanded its installed base. In Equipment, Alcon continued to expand its installed base with the CENTURION and LEGION devices.
In terms of end markets in Surgical, global cataract procedures were up in the mid-single digits in the first quarter. This growth varied significantly by region.
New Products to Add Value: In Presbyopia-correcting Intraocular Lens (PCIOLs), Alcon currently leads the market with more than 60% of the global share and more than 80% share in the United States. In Surgical, the company maintained a strong market share in PCIOLs, driven by the solid demand for products like PanOptix and Vivity despite new market entrants.
The company currently sees meaningful share gains driven by its new toric product launches, including Precision1, Total30 and Dailies Total1. Initial customer response for the newest Total30 — the first water gradient, reusable lens for astigmatic wearers — has been exceptional.Total30 toric is currently available in the United States and parts of Europe, with possible availability across additional markets throughout 2023.
In ocular health, ALC continues to integrate Aerie (acquired in November 2022) into the Alcon family. Its U.S. eye drop sales force has already added Rocklatan and Rhopressa to the promotional program, which contributed well to its Vision Care growth in the first quarter. ALC is simultaneously witnessing growth in its over-the-counter portfolio, mainly driven by favorable pricing and the sustained family of products.
Downsides
Q1 Headwinds: Alcon’s growth in net sales across all segments continued to be marred by unfavorable currency impacts. During the quarter, the company’s operating margin was impacted by legal settlement costs, rising inflationary costs, acquisition and integration-related expenses and increased R&D investments, post the acquisition of Aerie Pharmaceuticals, Inc.
A Tough Competitive Landscape: With the ophthalmology industry being highly competitive, Alcon faces intense competition in the Surgical and Vision Care businesses. In the Surgical business, the mixture of competitors ranges from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of specialized products. ALC also faces competition from the providers of alternative medical therapies such as pharmaceutical companies that have the potential to disrupt the core elements of its business.
Estimate Trend
Alcon has been witnessing a positive estimate revision trend for 2023. The Zacks Consensus Estimate for 2023 earnings per share has moved up from $2.63 to $2.64 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $9.35 billion. This suggests an 8.04% rise from the year-ago reported number.
Zimmer Biomet has an earnings yield of 5.50% compared to the industry’s -2.35%. Zimmer Biomet’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. Its shares have increased 31% against the industry’s 22.5% decline in the past year.
Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have risen 178.8% compared with the industry’s 14.4% increase over the past year.
PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.
Hologic, carrying a Zacks Rank #2 at present, has an earnings yield of 4.96% compared to the industry’s -6.68%. Shares of HOLX have risen 16.3% compared with the industry’s 14.4% growth over the past year.
Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.
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Here's Why You Should Retain Alcon (ALC) Stock for Now
Alcon (ALC - Free Report) is well-poised for growth in the coming quarters, backed by solid demand, strong commercial execution and pricing improvements across the Surgical and Vision Care franchises. In the first quarter, the company introduced Total30 for astigmatism. Core gross margin expansion in the quarter is encouraging. However, escalated costs and a tough competitive space do not bode well for Alcon.
In the past year, this Zacks Rank #2 (Buy) stock has increased 19.7% compared with the 16.4% growth of the industry and a 19.1% rise of the S&P 500 composite.
The renowned pharmaceutical and medical device manufacturer has a market capitalization of $38.58 billion. Alcon projects a long-term estimated earnings growth rate of 14.9% compared with 15.2% of the industry. ALC’s earnings surpassed estimates in three of the trailing four quarters and matched the same in one, delivering an average surprise of 8.85%.
Let’s delve deeper.
Upsides
Strong Prospects for Vision Care: In the first quarter of 2023, Vision Care reported double-digit growth, backed by the performance of both contact lenses and ocular health. In contact lenses, Alcon gained from its expanded product portfolio, which now includes sphere, toric and multifocal options for value, mainstream and premium customers in daily and reusable categories. ALC witnessed share gains, driven by the new toric product launches, including Precision1, Total30 and Dailies Total1.
Ocular health grew 15% compared to the prior-year quarter. Growth was primarily driven by the portfolio of eye drops, including acquired ophthalmic pharmaceutical products and price increases.
Image Source: Zacks Investment Research
Surgical Business Drives Growth: Total Surgical (consisting of Implantables, Consumables and Equipment/Other) recorded sales growth of 8% at CER. In Implantables, the company continued with its ATIOL (Advanced Technology Intraocular Lens) market leadership for another quarter, with nearly half of the global market and two-thirds of the market in the United States despite increasing competitive activity.
In Consumables, first-quarter sales were driven by favorable market conditions and pricing. In equipment, sales increased year over year on the continued strong demand for cataract and Vitreoretinal devices, particularly in international markets as the company upgraded and expanded its installed base. In Equipment, Alcon continued to expand its installed base with the CENTURION and LEGION devices.
In terms of end markets in Surgical, global cataract procedures were up in the mid-single digits in the first quarter. This growth varied significantly by region.
New Products to Add Value: In Presbyopia-correcting Intraocular Lens (PCIOLs), Alcon currently leads the market with more than 60% of the global share and more than 80% share in the United States. In Surgical, the company maintained a strong market share in PCIOLs, driven by the solid demand for products like PanOptix and Vivity despite new market entrants.
The company currently sees meaningful share gains driven by its new toric product launches, including Precision1, Total30 and Dailies Total1. Initial customer response for the newest Total30 — the first water gradient, reusable lens for astigmatic wearers — has been exceptional.Total30 toric is currently available in the United States and parts of Europe, with possible availability across additional markets throughout 2023.
In ocular health, ALC continues to integrate Aerie (acquired in November 2022) into the Alcon family. Its U.S. eye drop sales force has already added Rocklatan and Rhopressa to the promotional program, which contributed well to its Vision Care growth in the first quarter. ALC is simultaneously witnessing growth in its over-the-counter portfolio, mainly driven by favorable pricing and the sustained family of products.
Downsides
Q1 Headwinds: Alcon’s growth in net sales across all segments continued to be marred by unfavorable currency impacts. During the quarter, the company’s operating margin was impacted by legal settlement costs, rising inflationary costs, acquisition and integration-related expenses and increased R&D investments, post the acquisition of Aerie Pharmaceuticals, Inc.
A Tough Competitive Landscape: With the ophthalmology industry being highly competitive, Alcon faces intense competition in the Surgical and Vision Care businesses. In the Surgical business, the mixture of competitors ranges from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of specialized products. ALC also faces competition from the providers of alternative medical therapies such as pharmaceutical companies that have the potential to disrupt the core elements of its business.
Estimate Trend
Alcon has been witnessing a positive estimate revision trend for 2023. The Zacks Consensus Estimate for 2023 earnings per share has moved up from $2.63 to $2.64 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $9.35 billion. This suggests an 8.04% rise from the year-ago reported number.
Other Key Picks
Some other top-ranked stocks in the broader medical space are Zimmer Biomet (ZBH - Free Report) , Penumbra (PEN - Free Report) and Hologic, Inc. (HOLX - Free Report) .
Zimmer Biomet has an earnings yield of 5.50% compared to the industry’s -2.35%. Zimmer Biomet’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. Its shares have increased 31% against the industry’s 22.5% decline in the past year.
ZBH sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have risen 178.8% compared with the industry’s 14.4% increase over the past year.
PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.
Hologic, carrying a Zacks Rank #2 at present, has an earnings yield of 4.96% compared to the industry’s -6.68%. Shares of HOLX have risen 16.3% compared with the industry’s 14.4% growth over the past year.
Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.