National Vision Holdings, Inc. ( EYE Quick Quote EYE - Free Report) is likely to gain in the coming quarters, backed by the strength of the managed care business. The company’s stable liquidity buoys optimism for targeted capital expenditures in support of key growth initiatives. In the last reported quarter, National Vision delivered positive comparable store sales growth, higher than overall consolidated growth.
Meanwhile, the termination of the long-standing Walmart partnership may significantly affect National Vision’s business performance. It also faces intense competition from other players in the industry.
In the past year, this Zacks Rank #3 (Hold) stock has declined 51.4% compared with the 3.4% fall of the
industry and a 14.5% rise of the S&P 500 composite.
The leading optical retailer has a market capitalization of $1.29 billion. The company projects long-term estimated earnings growth of 19.8% compared with the industry’s 14.6%. National Vision surpassed estimates in three of the trailing four quarters and missed in one, delivering an earnings surprise of 32.67%, on average.
Let’s delve deeper.
Upsides Owned and Host Gains Market Share: All four subsegments within Owned and Host are gaining market share, banking on several growth drivers, including diminishing eyesight with increasing age, causing new customers to buy corrective eyewear, and a steady and consistent replacement cycle, as customers replace or purchase new eyewear for a variety of reasons, including changes in prescriptions, fashion trends and necessity. America's Best and Eyeglass World are particularly driving revenues. Image Source: Zacks Investment Research
The company is expanding sales via the continued rollout of its remote medicine technology. Per National Vision’s second-quarter update, it is on track with the expansion into at least an additional 200 remote-enabled stores in 2023.
Solvency and Capital Structure: National Vision exited second-quarter 2023 with cash and cash equivalents of $255 million, highly solvent to pay off the corresponding short-term debt of $11 million. Long-term debt came up to $566 million in the second quarter, compared with $564 million at the end of the first quarter. Future Strategies Look Promising: In terms of store expansion, EYE continues to see a sizable new opportunity for growth for many years to come. In the second quarter of 2023, the company opened 21 new America's Best and 3 Eyeglass World stores and closed one store.
Simultaneously, marketing continues to be a key factor driving traffic to National Vision’s stores, given the infrequent purchase cycle for eyeglasses. The company is on track for the 2023 CapEx in the range of $115 million-$120 million to support key growth initiatives.
Downsides Legacy Business Termination to Dent Profit: In connection with the termination of the Walmart contract, effective Feb 23, 2024, the company expects to record noncash goodwill and intangible asset impairment charges of approximately $60 million and $10 million, respectively, in the third quarter of fiscal 2023. Per management, this impending termination may significantly impact the company’s business.
Moreover, the transition period, including Walmart’s solicitation period under agreements, may cause disruptions to the business, including a reduction in sales, productivity and focus, and make it harder to retain associates and optometrists, which could adversely affect the financial condition and results of operations. Due to these factors, costs to retain associates and optometrists during the transition period may potentially increase, causing a material effect.
Tough Competition: In a highly competitive optical retail industry, National Vision competes with national retailers like LensCrafters, Pearle Vision and Visionworks. Competition exists in physical retail locations along with e-commerce platforms. The company also faces a competitive threat from the online sellers of contact lenses and eyewear. Estimate Trend
The Zacks Consensus Estimate for EYE’s 2023 earnings per share (EPS) has remained constant at 53 cents in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $2.12 billion. This suggests a 5.5% rise from the year-ago reported number.
Some better-ranked stocks in the broader medical space are
Haemonetics ( HAE Quick Quote HAE - Free Report) , SiBone ( SIBN Quick Quote SIBN - Free Report) and Quanterix ( QTRX Quick Quote QTRX - Free Report) .
Haemonetics has an earnings yield of 4.23% against the industry’s -1.33%. Haemonetics’ earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 19.39%. Its shares have risen 16.5% against the industry’s 3.4% decline in the past year.
HAE carries a Zacks Rank #2 (Buy) at present. You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
SiBone, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 22.9% compared with the industry’s 15.4%. Shares of the company have rallied 24% against the industry’s 0.5% fall over the past year.
SIBN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.37%.
Quanterix, carrying a Zacks Rank #2 at present, has an estimated earnings growth rate of 62.8% for the current year compared with the industry’s 17.7%. Shares of QTRX have risen 168.4% against the industry’s 3.4% decline over the past year.
Quanterix’s earnings surpassed estimates in each of the trailing four quarters, delivering an average earnings surprise of 30.39%. In the last reported quarter, it posted an earnings surprise of 55.56%.