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Here's Why You Should Retain National Vision (EYE) For Now

National Vision Holdings, Inc. EYE is gaining from new store openings across its America's Best and Eyeglass World brands. The company ended the first quarter of 2022 with better-than-expected earnings. Its strategic initiatives for 2022 seem encouraging as well. However, dull sales and stiff competition raise apprehension.

In the past year, this Zacks Rank #3 (Hold) stock has plunged 47.6% compared with a 34.2% fall of the industry and a 14.1% decline in the S&P 500 composite.

The renowned U.S. optical retailer has a market capitalization of $2.1 billion. Its first-quarter earnings surpassed the Zacks Consensus Estimate by 22.2%.

The company’s long-term expected growth rate is estimated at 22.2%, which compares with the industry’s growth expectation of 15.3% and the S&P 500’s estimated 11.4% growth.

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Let’s delve deeper.

Factors at Play

Q1 Upsides: National Vision’s first-quarter earnings beat the Zacks Consensus Estimate. The company’s quarterly results benefitted from pent-up demand from store closures. The timing of unearned revenues resulting from the sales volume in the final week of the reported quarter also aided the top line. The notable store count growth for America's Best and Eyeglass World brands instills optimism.

To address the capacity constraints related to eye exams, National Vision continued to expand its remote medicine initiative in the quarter under review. The partnership extension with Walmart through 2024 raises investors’ confidence.

Encouraging New Store Growth: In the first quarter, National Vision opened 15 new America's Best stores and two Eyeglass World stores. The company exited the quarter with 1,292 stores, up 5% from the year-ago period. For America's Best and Eyeglasses World growth brands, combined unit growth surged 6.8% year over year.

Strategies for 2022 Look Promising: National Vision plans to continue executing on core growth initiatives and further investing in strengthening competitive advantages. In the first quarter, the company noted that it intends to open at least 80 stores in 2022 and currently has a solid pipeline of specific locations for this year and into 2023.

National Vision is focused on new initiatives related to optometrists' compensation and recruiting. The company raised its target to operate remote medicine in up to 300 stores by the end of 2022, up from the previous goal of at least 200 stores. The company is also focused on becoming a key low-cost provider.

Downsides

Sales Performance Discouraging: National Vision’s revenues for the first quarter missed the Zacks Consensus Estimate and declined year over year. The decline is primarily attributable to the omicron impact, macroeconomic challenges, exam capacity constraints and unfavorable comparison with a very strong 2021.

Comp Growth to Decline: National Vision has been witnessing a volatile comp performance due to the pandemic over the past two years. In the first quarter, adjusted comparable-store sales fell 6.8% year over year, impacted by a decline in customer transactions. The company’s outlook for full-year 2022 assumes comps growth in the negative low teens.

Tough Competition: National Vision operates in a highly competitive optical retail industry. The company 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.

Estimate Trend

The Zacks Consensus Estimate for National Vision’s 2022 earnings is pegged at 70 cents, suggesting a 52.7% fall from the year-ago reported number.

The Zacks Consensus Estimate for 2022 revenues is pegged at $2.04 billion, indicating a 1.68% fall from the year-ago reported number.

Key Picks

A few better-ranked stocks in the broader medical space are Alkermes plc ALKS, AMN Healthcare Services, Inc. AMN and Medpace Holdings, Inc. MEDP.

Alkermes has an estimated long-term growth rate of 25.1%. Alkermes’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alkermes has outperformed the industry in the past year. ALKS has gained 15.2% against the industry’s 44.2% decline in the said period.

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 #1.

AMN Healthcare has outperformed its industry in the past year. AMN has gained 4.9% against the industry’s 54.7% 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 (Buy).

Medpace has outperformed its industry in the past year. MEDP has declined 25.3% compared with the industry’s 54.7% fall.


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