Yahoo Finance Reasons to Include Alcon (ALC) in Your Portfolio Right Now
Alcon ALC is well-poised to grow in the coming quarters, driven by its new product offerings. The performance of the Vision Care arm also appears encouraging. Strong financial stability in times of economic turmoil bodes well for the stock. However, concerns remain about the macroeconomic headwinds, which may strain the company’s margin performance. Competitive disadvantages also add to the worry.
In the past year, this Zacks Rank #2 (Buy) stock has advanced 14.6% compared with the 12.1% rise of the industry and the 28% growth of the S&P 500 composite.
The renowned pharmaceutical and medical device manufacturer has a market capitalization of $44.75 billion. ALC’s earnings surpassed estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 5.3%.
Let’s delve deeper.
Upsides
New Products Drive Growth: Alcon dominates the Presbyopia-correcting Intraocular Lens (PCIOLs) market with more than 80% share in the United States alone and more than 60% globally. In Surgical, products like PanOptix and Vivity are solidifying the company’s market-leading position in PCIOLs despite the entry of new players.
Moreover, the commercial launch of SMARTCataract in the United States positions Alcon well in the growing surgical ophthalmology space. The company’s upcoming launch of the UNITY CS system in 2026 will help secure a profitable revenue stream for its consumables business in the next decade.
Alcon currently sees meaningful share gains, driven by its new toric product launches, including Precision1, Total30 and Dailies Total1. In ocular health, the company is expanding its business by integrating Rocklatan and Rhopressa and concluding Phase 3 trials for AR-15512 — a novel topical dry eye drug candidate. The over-the-counter portfolio is also seeing growth due to favorable pricing and a sustained family of products.
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Vision Care Returns to Growth: Alcon is registering solid growth in the Vision Care segment, driven by strong sales of its contact lenses and ocular health products. Its strategy of investing in rapidly growing market segments is paying off, making it one of the fastest-growing companies in contact lenses, especially with specialty lenses like multifocal and toric. For the first quarter of 2024, Vision Care’s net sales increased 10% on a constant currency (cc) basis compared with the first quarter of 2023, with Contact lenses growing 11% at cc.
Ocular health growth was primarily driven by the portfolio of eye drops, including continued strength from the Systane family of artificial tears. Alcon is planning to file for the FDA approval of a topical drug candidate for dry eye called AR-15512, with approval expected in mid-2024 and significant revenue contribution from early 2026 onward.
Stable Solvency Structure With Heavy Payout Load: Alcon exited the first quarter of 2024 with cash and cash equivalents of $1.14 billion and short-term payable debt of $141 million on its balance sheet. The favorable solvency is appreciated, particularly during the economic downturn when it is majorly facing a manufacturing and supply disruption globally. The total debt-to-capital ratio was 18.4%, slightly lower than the fourth quarter’s 18.7%. Meanwhile, the interest coverage improved to 6.1% from 5.4% at the fourth quarter end.
Downsides
Macroeconomic Pressure Stays: Alcon is facing inflationary pressures on electronic components, freight, labor, resins and plastics, which is affecting margins. The company is also encountering supply-chain challenges in certain components, including microchips, resins and plastics, metals and filters. In the first quarter, the cost of net sales was up 2.9% year over year.
Tough Competitive Landscape: In the highly competitive ophthalmology industry, Alcon faces intense competition in both of its businesses. In the surgical business, competitors range from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of specialized products. Providers of alternative medical therapies can potentially disrupt the core elements of their business. In contact lenses, increased product entries from contact lens manufacturers in Asia are posing a massive threat.
Estimate Trend
The Zacks Consensus Estimate for Alcon’s 2024 earnings per share has remained constant at $3.05 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $9.95 billion. This suggests a 6.2% rise from the year-ago reported number.
Other Key Picks
Some other top-ranked stocks in the broader medical space are Hims & Hers Health HIMS, Medpace MEDP and ResMed RMD.
Hims & Hers Health’s earnings are expected to surge by a staggering 263.6% in 2024 compared with the industry’s 16.8%. HIMS’ earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 79.2%. Its shares have risen 75.3% against the industry’s 24.2% decline in the past year.
HIMS sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Medpace, also sporting a Zacks Rank #1 at present, has an estimated 2024 earnings growth rate of 27.1% compared with the industry’s 12.5%. Shares of MEDP have rallied 93.2% compared with the industry’s 8.7% rise over the past year.
MEDP’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 12.8%. In the last reported quarter, it delivered an average earnings surprise of 30.6%.
ResMed, carrying a Zacks Rank #2 at present, has an estimated fiscal 2024 earnings growth rate of 18.6% compared with the industry’s 14%. Shares of the company have fallen 2.4% against the industry’s 4.8% rise over the past year.
RMD’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 2.8%. In the last reported quarter, it delivered an average earnings surprise of 10.9%.
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