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Alcon (ALC) Faces Cost Pressure, Supply Chain Disruption

Alcon ALC operates in a challenging international market with subdued demand for ophthalmological products due to the pandemic. Also, a tough competitive landscape is a threat. The stock currently carries a Zacks Rank #4 (Sell).

Alcon has outperformed the industry over the past year. The stock has lost 18.3% compared with the industry’s 27% fall.

During the second quarter of 2022, within the Vision Care business of Alcon, contact lens sales growth was partially offset by supply chain challenges, primarily in contact lens care, which impacted growth by approximately 3 percentage points. Given the supply chain challenges, unfavorable foreign exchange impact, the ongoing inflationary pressure and other macroeconomic headwinds, the company had to reduce its core EPS and net sales expectations for 2022.

Alcon's cost of net sales in the second quarter was up 14.2% year over year. Adjusted gross profit (net sales to third parties less cost of net sales) fell 1.5% in the quarter. Adjusted gross margin contracted 362 basis points (bps) to 54.6% in the second quarter of 2022.

This apart, the ophthalmology industry is highly competitive. In both surgical and vision care businesses, Alcon faces intense competition. In the surgical business, Alcon faces a mixture of competitors, ranging from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of specialized products. The company also faces competition from providers of alternative medical therapies, such as pharmaceutical companies that have the potential to disrupt core elements of its business.

Alcon Price and Consensus

Alcon Price and Consensus
Alcon Price and Consensus

Alcon price-consensus-chart | Alcon Quote

On a positive note, Alcon exited the second quarter with revenues and earnings beating the Zacks Consensus Estimate. Despite the macroeconomic concerns, the company reported strong underlying second-quarter performance within its business. Its innovation pipeline is solid as evident from the successful launch of new ATIOL roles and SiHy contact lenses.

In the second quarter, in terms of end markets, within Surgical, global cataract procedures were up in high single digits. These excluded the impact of the market recovery in India that was significantly impacted by COVID-19 last year. Against this backdrop, Alcon saw significant growth in its implantable business, driven by the strength of advanced technology lenses for commercial execution and international market recovery.

Within the Vision Care end market, the market was dynamic and varied by region. United States grew in mid-single-digits, in line with historical averages, while Europe and Japan, which were impacted more significantly by COVID-19 in the second quarter of last year, grew in double digits.

Key Picks

A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. AMN, ShockWave Medical, Inc. SWAV and McKesson Corporation MCK.

AMN Healthcare has a long-term earnings growth rate of 3.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.7%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has outperformed its industry in the past year. AMN has lost 8.1% against the industry’s 33.4% fall.

ShockWave Medical, sporting a Zacks Rank #1 at present, has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.

ShockWave Medical has outperformed its industry in the past year. SWAV has gained 33.1% against the industry’s 27% fall over the past year.

McKesson has an estimated long-term growth rate of 10.1%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13%, on average. It currently carries a Zacks Rank #2 (Buy).

McKesson has outperformed its industry in the past year. MCK has gained 77.2% against the industry’s 10.7% fall.

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