Here's Why You Should Retain National Vision (EYE) Stock Now
National Vision Holdings, Inc. EYE is likely to grow in the coming quarters, backed by its strategic execution of key initiatives for growth. The company’s favorable solvency bodes well to further invest in these initiatives to enhance customer experience and strengthen its market position. Within Owned & Host, contributions from America's Best and Eyeglass World brands are highly optimistic.
Meanwhile, the termination of the long-standing Walmart contract, resulting in the full dilution of the company’s Legacy business (effective 2024), might hurt National Vision’s sales significantly. Competitive disadvantages also remain a concern.
In the past year, this Zacks Rank #3 (Hold) stock has declined 48.7% compared with the 1.8% fall of the industry and a 21.1% rise of the S&P 500 composite.
The leading optical retailer has a market capitalization of $1.58 billion. The company projects long-term estimated earnings growth of 14.5% compared with the industry’s 12.3%. National Vision surpassed estimates in three of the trailing four quarters and missed in one, delivering an earnings surprise of 48.3%, on average.
Let’s delve deeper.
Upsides
Promising Future Strategies: National Vision plans to continue executing core growth initiatives and further investing in strengthening competitive advantages. In terms of store expansion, the company continues to see a sizable new opportunity with growth for many years to come. Despite many supply-chain obstacles, National Vision opened 21 new stores in the third quarter and is on track to open nearly 65 to 70 new stores in 2023.
The company attributes marketing as a key factor in driving traffic to National Vision’s stores, given the infrequent purchase cycle for eyeglasses. National Vision invested $82 million in capital expenditures, primarily focused on new store openings and investment in labs, distribution centers and customer-facing technology. The company currently remains on track for 2023 CapEx in the range of $115 million-$120 million to support key growth initiatives.
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Owned & Host Gains Market Share: All four subsegments within Owned and Host are consistently gaining market share, banking on several growth drivers. These include 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.
National Vision is expanding sales by the continued rollout of its remote medicine technology. National Vision is also deploying remote medicine technology in tandem with electronic health record technology to drive expanded capacity, facilitate in-store efficiencies and improve the patient experience. The combination of these initiatives is resulting in added exam capacity in sales, which the company would not have otherwise.
Solvency and Capital Structure: National Vision exited the third quarter of 2023 with cash and cash equivalents of $266 million and a corresponding short-term debt of $11 million. This is good news in terms of the company’s solvency position. Long-term debt came up to $552 million in the third quarter compared with $555 million at the end of the second quarter.
Downsides
Tough Competition: National Vision operates in a highly competitive optical retail industry. The companies within the industry generally compete based on recognition of the brand name, price, convenience, selection, service and product quality. National Vision competes with national retailers like LensCrafters, Pearle Vision and Visionworks in the broader optical retail industry. Competition exists in physical retail locations along with e-commerce platforms. The company also faces a competitive threat from online sellers of contact lenses and eyewear.
Legacy Business Termination to Dent Profit: In July 2023, National Vision announced that its long-term partnership with Walmart is going to terminate on Feb 23, 2024. Management noted that this impending termination may significantly impact the company’s business. The transition period, including Walmart’s solicitation period under the agreements, may cause disruption to the business, including a reduction in sales, productivity and focus, and may make it harder to retain associates and optometrists. This could adversely affect the company’s financial condition and results of operations.
Estimate Trend
The Zacks Consensus Estimate for National Vision’s 2023 earnings per share (EPS) has remained constant at 55 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 5.6% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics HAE, DaVita DVA and HealthEquity HQY.
Haemonetics has an estimated earnings growth rate of 28.4% for fiscal 2024 compared with the industry’s 15.3%. HAE’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 16.1%. Its shares have increased 13% against the industry’s 1.8% fall 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.
DaVita, sporting a Zacks Rank #1 at present, has a long-term estimated earnings growth rate of 17.3% compared with the industry’s 11.3%. Shares of the company have increased 36.3% compared with the industry’s 9.6% rise over the past year.
DVA’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.6%. In the last reported quarter, it delivered an average earnings surprise of 48.4%.
HealthEquity, carrying a Zacks Rank #2 at present, has an estimated long-term earnings growth rate of 27.5% compared with the industry’s 13.9%. Shares of HQY have increased 25.1% against the industry’s 5.8% decline over the past year.
HQY’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 16.5%. In the last reported quarter, it delivered an average earnings surprise of 22.5%.
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DaVita Inc. (DVA) : Free Stock Analysis Report
Haemonetics Corporation (HAE) : Free Stock Analysis Report
HealthEquity, Inc. (HQY) : Free Stock Analysis Report
National Vision Holdings, Inc. (EYE) : Free Stock Analysis Report
