Alcon Inc
ALC
has been gaining from its solid second-quarter 2021 performance. Recovery in Vision Care business along with a raised outlook for 2021 look encouraging. Yet, stiff competition and escalating expenses remain concerns.
Over the past year, shares of this Zacks Rank #2 (Buy) company have outperformed the
industry
. The company has surged 49.8% compared with 34.8% growth of the industry and 19% rise of the S&P 500.
The company researches, develops, manufactures, distributes, and sells a full suite of eye care products. It has a market capitalization of $41.70 billion. The company projects 17.7% growth for the next five years. Further, the company surpassed estimates in the trailing three quarters and missed in one, the average surprise being 38.97%.
Let’s delve deeper.
Key Growth Drivers
Impressive Q2 Performance:
The company reported better-than-expected results for second-quarter 2021. The results marked the highest quarterly sales and earnings since the company’s spin-off from Novartis. Strong commercial execution related to the company’s product launches resulted in growth across all sales categories in Surgical and Vision Care over 2019. Strong market recovery in the United States is an added plus. In the second quarter, Total Surgical (consisting of Implantables, Consumables and Equipment/other) reported sales growth of 100% on a reported basis. The company currently assumes that the U.S. market will continue to grow relative to 2019 in the second half of 2021 and that international markets will return to 2019 levels early next year. This bullish trend is accordingly expected to continue through the coming months.
Vision Care Returns to Growth:
Total Vision Care (comprising Contact lenses and Ocular health) reported sales growth of 49% year over year (up 44% at CER). In the quarter, Vision Care returned to growth over 2019. New product launches are gaining momentum and expanding the company’s market share despite variable recovery in international markets. The quarter’s contact lens growth reflected improvements in all product categories and continued momentum from the launch of Precision1 and Precision1 for astigmatism. Growth in ocular health was led by Systane and Pataday, primarily benefiting from the recent launch of Pataday Extra Strength.
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Raised Guidance:
Assuming global markets will return to 2019 levels (pre pandemic) at the end of 2021, Alcon updated its guidance for the year.
Net revenues are expected in the range of $8.0-$8.2 billion (higher than the previously-announced view of $7.8-$8.0 billion). The core earnings per share estimate guidance has also been raised to the band of $2.00-$2.10 (the previous guided range being $1.85-$1.95).
Downsides
Escalating Costs and Expenses:
In the second quarter, cost of net sales rose 2.5% year over year. Selling, general & administrative expenses shot up 31.9%. Research & development expense increased 9.2% in the reported quarter. This is continuously exerting pressure on Alcon’s bottom line.
Tough Competitive Landscape:
The ophthalmology industry is highly competitive and, in both surgical and vision care businesses, Alcon faces intense competition from large manufacturers with multiple business lines and small manufacturers that offer a limited selection of specialized products. The company also faces competition from the providers of alternative medical therapies.
Estimate Trends
Alcon is witnessing a positive estimate revision trend for the current year. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 6.8% north to $2.04.
The Zacks Consensus Estimate for the company’s third-quarter fiscal 2021 revenues is pegged at $2.04 billion, suggesting a 10.8% rise from the year-ago reported number.
Other Key Picks
A few similar-ranked stocks from the broader medical space are
Envista Holdings Corporation
NVST
,
BellRing Brands, Inc.
BRBR
and
Biolase, Inc.
BIOL
, each carrying a Zacks Rank #2. You can see
the complete list of Zacks #1 Rank (Strong Buy) stocks here.
Envista Holdings has an estimated long-term earnings growth rate of 27%.
BellRing Brands has an estimated long-term earnings growth rate of 29%.
Biolase has a projected long-term earnings growth rate of 15%.
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