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Here's Why Investors Should Retain Alcon (ALC) Stock For Now

Alcon Inc. ALC has been gaining from strength across the Surgical and Vision Care franchises. The company exited the first quarter of 2022 with better-than-expected results. Its strategies to mitigate the impact of the ongoing inflationary pressure instill optimism. However, macroeconomic headwinds and stiff competition raise apprehension.

In the past year, this Zacks Rank #3 (Hold) stock has gained 8.4% compared with a 17% decline of the industry and a 6.1% drop of the S&P 500 composite.

The renowned global medical device company has a market capitalization of $36.97 billion. Its first-quarter 2022 earnings surpassed the Zacks Consensus Estimate by 30.8%.

The company has a long-term earnings growth rate of 14.4% compared with the industry’s growth projection of 16.9%. The S&P 500 has an estimated 10.8% long-term rise.

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Zacks Investment Research


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Let’s delve deeper.

Key Drivers

Q1 Upsides: Alcon’s first-quarter revenues and earnings beat the Zacks Consensus Estimate. The company reported year-over-year growth across all Surgical and Vision Care sales categories. The upside was driven by Alcon’s innovative product portfolio, solid execution by its commercial organization and ongoing market recovery. Margin improvements in the reported quarter instill optimism. The company’s 2022 guidance with strong growth projections over 2021 is an added advantage.

Despite bearing the brunt of inflationary pressures across both 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 Business Grows: We are upbeat about Alcon’s Total Surgical (consisting of implantables, consumables and equipment/other) business, which recorded sales growth of 17% on a reported basis in the first quarter. The company registered implantables growth, fueled by the continued adoption of advanced technology intraocular lenses. The upside in consumables can be attributed to higher procedure volumes backed by improving market conditions. Equipment/other also exhibited growth on the increased demand for cataract equipment.

In terms of end market, within Surgical, global cataract procedures increased in low-teens compared with the year-ago period’s levels on strength in select international markets.

Vision Care Returns to Growth: Alcon’s Total Vision Care (comprising contact lenses and ocular health) reported sales of 10% year over year during the first quarter. Contact lens growth was driven by silicone hydrogel contact lens sales, including the Precision1 and Dailies Total1 product lines and the Total30. Robust demand for Systane dry eye and Simbrinza glaucoma eye drops and improvements in certain international markets drove growth in the ocular health business.

Within the Vision Care end market, the contact lens market is estimated to have increased in mid-single-digits in the reported quarter, instilling optimism.

Downsides

Macroeconomic Woes: During the first quarter, Alcon recorded a decline in contact lens care stemming from supply chain challenges. In the quarter under review, the company witnessed increasing costs of labor and transportation and rising prices on commodities like plastics and resins. Further, unfavorable foreign exchange impact continued to pose challenges for Alcon.

Tough Competitive Landscape: The ophthalmology industry is highly competitive, with Alcon facing intense rivalry across both Surgical and Vision Care franchises. The increasing product entries from contact lens manufacturers in Asia are posing a massive threat to the company’s contact lens business.

Estimate Trend

Over the past 30 days, the Zacks Consensus Estimate for Alcon’s earnings for 2022 has moved 0.8% north to $2.41.

The Zacks Consensus Estimate for 2022 revenues is pegged at $8.85 billion, suggesting a 7.6% surge from the 2021 reported number.

Key Picks

A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Medpace Holdings, Inc. MEDP and UnitedHealth Group Incorporated UNH.

AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently flaunts a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare has outperformed its industry in the past year. AMN has gained 6.1% against the industry’s 63.6% fall.

Medpace has a historical growth rate of 27.3%. Medpace’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%. It currently has a Zacks Rank #2.

Medpace has outperformed its industry in the past year. MEDP has declined 13.2% compared with the industry’s 63.6% fall.

UnitedHealth has an estimated long-term growth rate of 14.8%. UnitedHealth’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%. It currently carries a Zacks Rank #2.

UnitedHealth has outperformed the industry over the past year. UNH has gained 23.1% compared with 20.4% industry growth in the said period.


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