Here's Why Investors Should Buy Alcon (ALC) Stock Right Now
Alcon ALC is well-poised for growth in the coming quarters, backed by its competitive product portfolio and strong commercial execution. In the second quarter of 2023, contact lens sales growth was driven by innovations, coupled with meaningful contributions from the recent SiHy launches, including PRECISION1 Sphere and Toric, TOTAL30 Sphere and Toric and DAILIES TOTAL1Toric.
A stable solvent balance sheet further buoys optimism. However, unanticipated macroeconomic impacts and a tough competitive space do not bode well for Alcon.
In the past year, this Zacks Rank #2 (Buy) stock has increased 29.8% compared with the 4.7% growth of the industry and an 18.7% rise of the S&P 500 composite.
The renowned pharmaceutical and medical device manufacturer has a market capitalization of $39.42 billion. Alcon projects a long-term estimated earnings growth rate of 14.9% compared with 15.4% of the industry. ALC’s earnings surpassed estimates in three of the trailing four quarters and were breakeven in one, delivering an average surprise of 8.03%.
Let’s delve deeper.
Upsides
Vision Care Returns to Growth: Within Vision Care, Alcon is registering solid growth, banking on strong sales of its contact lenses and ocular health products. In contact lenses, the company is successfully executing its strategy of investing in fast-growing market segments where it has significant share opportunities.
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In terms of Daily Lenses, the company is benefiting from the strong performance of Toric lenses, including Precision1 and DAILIES TOTAL1 Toric. In Ocular health, Alcon continues to see strong retail, consumer and physician interest in its portfolio of eye drops. Particularly, SYSTANE and Pataday are registering strong growth.
New Products Drive Growth: In Presbyopia-correcting Intraocular Lens (PCIOLs), Alcon currently leads the market with more than 60% of global share and more than 80% share in the United States. In Surgical, the company maintained a strong market share in PCIOLs, solidifying its market-leading position, driven by the strong 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. 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 its promotional program, which contributed well to its Vision Care growth in the second quarter.
Stable Solvency Structure With Heavy Payout Load: Alcon exited the second quarter with cash and cash equivalents of $0.66 billion and a corresponding short-term payable debt of $100 million. This represents a good financial position. The total debt was $4.68 billion compared with $4.69 billion at the end of the first quarter. The company’s interest coverage favorably stood at 4.2% compared with the Q1 interest coverage of 4.1%.
Downsides
Macroeconomic Pressure Persists: Alcon is experiencing inflationary pressure on electronic components, freight, labor, resins and plastics, impacting the company’s margins. ALC is also encountering supply-chain challenges in certain components, including microchips, resins and plastics, metals and filters. The company expects these inflationary pressures and supply-chain challenges to continue in 2023. The cost of net sales in the second quarter was up 4.1% year over year. SG&A expenses rose 3.6% year over year.
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 $2.72 to $2.75 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $9.48 billion. This suggests a 9.51% rise from the year-ago reported number.
Other Key Picks
Some other top-ranked stocks in the broader medical space are Haemonetics HAE, Intuitive Surgical ISRG and Quanterix QTRX.
Haemonetics has an earnings yield of 4.18% against the industry’s -1.44%. Haemonetics’ earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 19.39%. Its shares have rallied 23.6% compared with the industry’s 0.8% rise in the past year.
HAE carries a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Intuitive Surgical, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 15.7% compared with the industry’s 15.4%. Shares of the company have rallied 52.6% compared with the industry’s 4.7% growth over the past year.
ISRG’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 4.19%.
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 19.0%. Shares of QTRX have surged 196.4% compared with the industry’s 0.8% rise 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%.
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