Alcon stock poised for multi-year EPS growth, says Citi By Investing.com

On Wednesday, Citi reaffirmed its Buy rating and CHF103.00 price target for Alcon Inc. (NYSE::SW) (NYSE: ALC) stock, a leader in eye care products. The firm’s analysis followed Alcon’s second quarter 2024 report, which showed currency-adjusted (ccy) sales growth slightly below expectations.

While the Vision Care segment lagged behind estimates by approximately 200-300 basis points (bps), this was partially offset by a stronger performance in the Surgical division, particularly in Implantables, which saw a notable sequential growth acceleration of 400bps.

Despite a minor deceleration in group organic growth compared to the previous two-year period, dropping by roughly 50bps, the robust results in Implantables indicate resilience against competitive product launches. Core earnings before interest and taxes (EBIT) fell short of the consensus by about 3% and were approximately 6% under Citi’s expectations.

However, these figures were impacted by a one-time US$30 million inventory charge in the Vision Care business. Excluding this charge, core EBIT was actually 3% above the consensus and aligned with Citi’s forecast.

Alcon has confirmed its guidance for the full year of 2024, signaling confidence in its business trajectory. Although the mixed results in the Vision Care sector might exert some pressure on Alcon’s stock, Citi’s outlook remains optimistic.

The firm anticipates that Alcon is at the beginning of a multi-year cycle of product introductions that could lead to a 3-13% rise in earnings per share (EPS) above the current consensus from 2025 to 2027.

In other recent news, Alcon Inc. reported second-quarter earnings that exceeded expectations, with adjusted earnings per share of $0.74, surpassing the consensus forecast of $0.73. However, the company’s revenue of $2.48 billion fell short of Wall Street’s projection of $2.53 billion.

The eye care company’s sales rose 3% year-over-year, or 6% on a constant currency basis, to $2.48 billion, with notable strength in its contact lens and implantables businesses, particularly in international markets.

Despite the revenue shortfall, Alcon maintained its full-year 2024 guidance, continuing to project adjusted earnings per share of $3.00 to $3.10 and revenue of $9.9 billion to $10.1 billion. The company’s operating margin also expanded to 12.8% from 11.2% a year earlier, reflecting improved leverage from higher sales.

However, Alcon noted significantly higher inventory provisions in its Vision Care segment due to a supplier-related quality issue. These are some of the recent developments in the company.

InvestingPro Insights

As Alcon Inc. navigates the competitive landscape of the eye care industry, current InvestingPro data and tips offer a deeper understanding of the company’s financial health and market position. According to InvestingPro, Alcon’s market cap stands at $47.84 billion with a P/E ratio of 45.29, reflecting a premium valuation that investors are willing to pay for its earnings. This is slightly above the P/E ratio for the last twelve months as of Q1 2024, which is 45.81. Despite a modest dividend yield of 0.19%, Alcon has demonstrated a commitment to its shareholders by raising its dividend for four consecutive years, showcasing a stable financial policy.

InvestingPro Tips also highlight that Alcon is trading at a high earnings multiple, which could suggest that investors have high expectations for the company’s future growth. Additionally, with a PEG ratio of 0.22 for the last twelve months as of Q1 2024, the stock appears to be trading at a low price relative to near-term earnings growth prospects. This could indicate potential value for investors looking to capitalize on growth opportunities. Furthermore, as a prominent player in the Healthcare Equipment & Supplies industry, Alcon’s liquid assets exceed its short-term obligations, providing financial flexibility and stability.

Investors interested in Alcon’s future prospects can find additional insights and tips on InvestingPro, with a total of 13 InvestingPro Tips available, including detailed analyses of earnings revisions, debt levels, and valuation multiples.

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