Here’s Why Investors Should Hold Alcon (ALC) Stock For Now – June 9, 2022
Alcon inc. (ALC – Free Report) has gained strength in the Surgical and Vision Care franchises. The company ended the first quarter of 2022 with better than expected results. Its strategies aimed at mitigating the impact of ongoing inflationary pressures give cause for optimism. However, macroeconomic headwinds and stiff competition are causing apprehension.
Over the past year, this Zacks Rank #3 (Hold) stock has gained 8.4% against a 17% decline in the industry and a 6.1% decline in the S&P 500 composite.
The famous global medical device company has a market capitalization of $36.97 billion. Its first-quarter 2022 earnings beat Zacks’ consensus estimate by 30.8%.
The company has a long-term earnings growth rate of 14.4% compared to the industry growth projection of 16.9%. The S&P 500 has an estimated long-term upside of 10.8%.
Image source: Zacks Investment Research
Let’s go deeper.
Advantages of T1: Alcon’s first-quarter revenue and profit beat Zacks’ consensus estimate. The company recorded year-over-year growth in all categories of surgical and vision care sales. The increase was driven by Alcon’s innovative product portfolio, the strong execution of its sales organization and the continued market recovery. The improvement in margins during the reported quarter gives cause for optimism. The company’s guidance for 2022, with strong growth projections for 2021, is an added bonus.
Despite the weight of inflationary pressures in surgical and vision care franchises, Alcon was able to mitigate much of the impact through cost improvement efforts, strategic price increases and contract negotiations with suppliers.
Surgical activity is developing: We are bullish on Alcon’s Total Surgical business (consisting of implants, consumables and equipment/other), which saw sales growth of 17% on a reported basis in the first quarter. The company saw growth in implants, fueled by the continued adoption of advanced technology intraocular lenses. The increase in consumables can be attributed to higher procedure volumes supported by improving market conditions. Equipment/Other also grew due to increased demand for cataract equipment.
In terms of the end market, within surgery, global cataract procedures were up in young teens from year-ago levels on the back of strength in some international markets.
Vision care revives growth: Alcon’s Total Vision Care (including contact lenses and eye health) posted 10% year-over-year sales in the first quarter. Contact lens growth was driven by sales of silicone hydrogel contact lenses, including the Precision1 and Dailies Total1 and Total30 product lines. Strong demand for Systane Dry Eye and Simbrinza Glaucoma Eye Drops and improvements in certain international markets drove growth in the eye health business.
In the eye care end-market, the contact lens market is estimated to have grown at mid-digit in the quarter under review, instilling optimism.
Macroeconomic woes: During the first quarter, Alcon experienced a decline in contact lens servicing due to supply chain issues. During the quarter under review, the company witnessed an increase in labor and transport costs and an increase in the prices of raw materials such as plastics and resins. In addition, the unfavorable impact of foreign exchange continued to challenge Alcon.
Tough competitive landscape: The ophthalmology industry is highly competitive, with Alcon facing intense rivalry between surgical and vision care franchises. Increasing product inflows from contact lens manufacturers in Asia pose a massive threat to the company’s contact lens business.
Estimate the trend
Over the past 30 days, the Zacks consensus estimate for Alcon’s 2022 earnings has moved 0.8% north to $2.41.
Zacks’ consensus estimate for 2022 revenue is pegged at $8.85 billion, suggesting a 7.6% increase from the figure reported in 2021.
A few higher ranked stocks in the broader medical field are AMN Healthcare Services, Inc. (AMN – free report), Medpace Holdings, Inc. (MEDP – free report) and UnitedHealth Group Incorporated (A H – free report).
AMN Healthcare has a long-term earnings growth rate of 1.1%. The company has beat earnings estimates in the past four quarters, delivering an average 15.6% surprise. It currently boasts a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has outperformed its industry over the past year. AMN gained 6.1% against a decline of 63.6% for the industry.
Medpace has a historic growth rate of 27.3%. Medpace’s earnings have exceeded estimates for the past four quarters, with the average surprise being 17.1%. He currently has a No. 2 Zacks rank.
Medpace has outperformed its industry over the past year. The MEDP fell 13.2% compared to the industry’s 63.6% drop.
UnitedHealth has an estimated long-term growth rate of 14.8%. UnitedHealth’s earnings have exceeded estimates for the past four quarters, with the average surprise being 3.7%. He currently wears a No. 2 Zacks rank.
UnitedHealth has outperformed the industry over the past year. UNH gained 23.1% against industry growth of 20.4% during the said period.