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Here's Why Investors Should Buy Alcon (ALC) Stock Right Now

Alcon ALC is likely to grow in the coming quarters, backed by the flourishing Surgical business with its diversified portfolio and innovative technologies. Strength in the Vision Care business will further fuel growth. Strong, stable solvency also appears encouraging. Meanwhile, headwinds, such as macroeconomic impacts and the fiercely competitive industry, remain concerns for Alcon’s operations.

In the past year, this Zacks Rank #3 (Hold) stock has increased 17.7% compared with the 9.7% rise of the industry and the 27.6% growth of the S&P 500 composite.

The renowned pharmaceutical and medical device manufacturer has a market capitalization of $40.44 billion. Alcon projects an estimated earnings growth rate of 13.5% for 2025 compared with the S&P 500’s 8%. ALC’s earnings surpassed estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 7.4%.

Let’s delve deeper.

Upsides

Surgical Business Grows: Alcon’s Surgical business continues to gain from its diverse portfolio and incremental innovation. Globally, the company leads the market in Implantables, with one out of every three IOLs implanted with an Alcon lens. Vivity and PanOptix continue to lead the category in the United States and worldwide. Additionally, it continues to expand in areas where it has significant opportunities to grow share, such as China.

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Alcon's 2024 plans for its Surgical business include the launch of UNITY VCS — the next-generation Phacovit device expected to capture substantial market share. UNITY VCS claims to generate significant opportunities, particularly in next-generation consumables, which is a significant recurring revenue stream and contributes approximately half of the company’s surgical revenues. Meanwhile, Alcon also awaits the launch of its next-generation diagnostics device, UNITY DX. This technology will leverage the data captured to improve outcomes through AI-driven algorithms.

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Zacks Investment Research


Image Source: Zacks Investment Research

 

Bright Prospects of Vision Care:Alcon is registering solid growth within the Vision Care segment, banking on strong sales of its contact lenses and ocular health products. In contact lenses, Alcon is witnessing strong interest in its specialty lenses, including multifocal and toric. During the fourth quarter of 2023, it launched two new specialty lenses — Total 30 for astigmatism and multifocal. The company has been witnessing a strong uptake of its specialty daily lenses, including DAILIES Total1 Toric, DAILIES Total1 Multifocal and Precision1 Toric.

In the ocular health business, the portfolio of eye drops is generating strong demand, particularly the SYSTANE Hydration Multi-Dose Preservative-Free Lubricant Eye Drop. The company is also looking forward to filing a topical drug candidate for dry eye called AR-15512, with FDA approval expected somewhere in 2024. Alcon is optimistic about meaningful revenue contribution from this product from the beginning of 2026, with peak sales following the launch anticipated to reach $250 million-$400 million.

Stable Solvency Structure: Alcon exited the fourth quarter of 2023 with cash and cash equivalents of $1.09 billion and has a short-term payable debt of $145 million. This stable solvency buoys optimism, particularly during the economic downturn when it is majorly facing a manufacturing and supply disruption globally. The total debt remained at $4.73 billion compared with the $4.69 billion at the end of the third quarter. Alcon’s interest coverage improved to 5.4% in the fourth quarter, up from 4.5% in the third quarter.

Downsides

Macroeconomic Pressure Persists: Alcon has been experiencing inflationary pressures on electronic components, freight, labor, resins and plastics, impacting the company’s margins. Additionally, the company encountered supply-chain challenges in certain components, including microchips, resins and plastics, metals and filters. In the fourth quarter of 2023, the cost of net sales increased 6.4% year over year.

Tough Competitive Landscape: In the highly competitive ophthalmology industry, Alcon’s competitors in the surgical business range from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of specialized products. Alcon also competes with alternative medical therapy providers, such as pharmaceutical companies, which could disrupt its core business.

In vision care, the contact lens market faces a massive threat from increased product entries from manufacturers in Asia. Apart from being intensely competitive, the market is characterized by declining sales volumes for older and reusable product lines and growing demand for daily lenses and advanced materials lenses.

Estimate Trend

The Zacks Consensus Estimate for Alcon’s 2024 earnings per share has remained constant at $3.04 in the past 30 days.

The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $9.97 billion. This suggests a 6.4% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are DaVita DVA, Cardinal Health CAH and Stryker SYK.

DaVita has a long-term estimated earnings growth rate of 12.1% compared with the industry’s 11.3%. DVA’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 35.6%. Its shares have rallied 65.3% compared with the industry’s 23.2% rise in the past year.

DVA sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cardinal Health, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term earnings growth rate of 14.2% compared with the industry’s 11.6%. Shares of the company have increased 45% compared with the industry’s 11.7% rise over the past year.

CAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 15.6%. In the last reported quarter, it delivered an average earnings surprise of 16.7%.

Stryker, carrying a Zacks Rank #2 at present, has an estimated earnings growth rate of 11.7% for the next year compared with the S&P 500’s 8%. Shares of SYK have increased 21.5% compared with the industry’s 4.6% rise over the past year.

SYK’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 5.1%. In the last reported quarter, it delivered an average earnings surprise of 5.8%.

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Stryker Corporation (SYK) : Free Stock Analysis Report

DaVita Inc. (DVA) : Free Stock Analysis Report

Cardinal Health, Inc. (CAH) : Free Stock Analysis Report

Alcon (ALC) : Free Stock Analysis Report

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