Alcon Is Maintained at Buy by Needham

Swiss stocks closed little changed as markets mull over the latest inflation figures from the US, along with local earnings releases and trading updates.

The Swiss Market Index ticked down 0.07% on Wednesday's close.

In the US, the annual inflation rate edged up to 2.6% in October from 2.4% in September, in line with consensus estimates. The consumer price index increased 0.2% on a monthly basis in October, the same rise as in the previous three months, according to the Bureau of Labor Statistics.

"For the Fed, this data shouldn't move the needle. It is overwhelmingly likely that they will follow their recent cuts with another 25 bp cut at the meeting on December 17-18. At that meeting, they will have an opportunity to update their forecasts with the benefit of certainty on election results and cleaner labor market data. So the outlook may shift significantly after the meeting, but we see no reason for a big change ahead of it," Jefferies said in a note.

In corporate news, Swiss software and cloud technology company SoftwareOne saw its shares jump 7.68% after confirming its revenue growth guidance for 2024 to be in the range of 2% to 5% in constant currency as it booked a rise in third-quarter group revenue. Looking ahead, it expects positive revenue growth for 2025, bolstered by cost savings, while targeting double-digit revenue growth for 2026 in constant currency.

Meanwhile, Alcon posted a 6% year-over-year increase in third-quarter net sales to $2.43 billion on a reported and constant currency basis, with net income also rising over the period. The Swiss eye care products company, however, downgraded its net sales and EPS outlook for full year 2024, now expecting between $9.8 billion and $9.9 billion in net sales and core diluted EPS in the range of $3.00 to $3.05. The stock was up 0.10% at closing.

Alcon, Inc. ALC delivered core earnings per share (EPS) of 81 cents for the third quarter of 2024, up 22.7% from the year-ago quarter’s figure (up 25% at the constant exchange rate or CER). The figure topped the Zacks Consensus Estimate by 12.5%.

Alcon reports “core” results based on non-IFRS (International Financial Reporting Standards) measures. In the third quarter, the company’s EPS was 53 cents, up 29% (up 32% at CER) year over year.

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Revenues in Detail

Alcon’s net sales to third parties in the quarter under review were $2.43 billion, which missed the Zacks Consensus Estimate by 0.8%. However, the top line increased by 5.6% from the year-ago quarter’s levels (up 6% at CER).

Shares of Alcon rose 3.6% in after hour-trading yesterday following the earnings release.

Quarter in Detail

Alcon reports operations through two segments — Surgical (comprising Implantables, Consumables and Equipment/Other) and Vision Care (comprising Contact Lenses and Ocular Health).

Surgical

In the third quarter of 2024, Surgical sales amounted to $1.34 billion, up 6% on a reported and CER basis year over year. Our model projected the segment’s growth to be 6.1% at CER versus the prior year.

Within this, net sales in Implantables increased 5% at CER, led by strong sales of advanced technology intraocular lenses in international markets, including a benefit from volume-based procurement in China, partially offset by slower market conditions in the United States. Our model projected 7.2% year-over-year growth at CER.

Alcon Price, Consensus and EPS Surprise

Alcon price-consensus-eps-surprise-chart | Alcon Quote

Consumables increased 6% at CER, driven by vitreoretinal consumables in international markets, cataract consumables and price increases. Our model’s projection was an increase of 5.5% at CER.

Equipment/Other was up 1% at CER from the prior-year quarter’s levels. Our model had forecast a decline of 1.1% at CER.

Vision Care

The segment reported total sales of $1.1 billion, up 7% year over year on both a reported and CER basis. Our model’s projection was 7.9% growth at CER.

Net sales of Contact Lenses increased 8% year over year at CER, driven by product innovation, including toric multifocal modalities and price increases. This surpassed our model’s projected growth of 10% at CER year over year.

Ocular Health sales increased 4% year over year at CER, primarily driven by the portfolio of eye drops, including continued strength from the Systane family of artificial tears. However, this was partially offset by declines in contact lens care in international markets. Our model forecast was 5.9% at CER.

Margins

The cost of net sales in the third quarter was $1.06 billion, up 4.1% year over year. The core gross profit rose 6.9% to $1.37 billion in the reported quarter. Meanwhile, the core gross margin expanded 64 basis points (bps) to 56.3% in the third quarter of 2024.

SG&A expenses increased 1.4% year over year, while R&D expenses rose 11.9% year over year. The core operating margin expanded 152 bps in the third quarter to 13.8%.

Financial Position

Alcon exited the third quarter of 2024 with cash and cash equivalents of $1.57 billion compared with $1.37 billion at the end of the second quarter.

The cumulative net cash flow from operating activities at the end of the third quarter was $1.62 billion compared with $937 million in the year-ago period. Free cash flow totaled $1.29 million at the end of the third quarter of 2024 compared with $592 million in the comparable 2023 months.

2024 Outlook

Alcon updated its financial outlook for 2024.

The company now anticipates 2024 net sales in the range of $9.80-$9.90 billion (compared with the earlier range of $9.90-$10.10 billion), indicating growth of 6%-7% (earlier 7%-9%) at CER from 2023. The Zacks Consensus Estimate for ALC’s revenues is pegged at $9.89 billion.

Core EPS for the full year is expected in the range of $3.00-$3.05 ($3.00-$3.10 earlier). This suggests growth of 15%-17% (earlier 15%-18%) at CER from the 2023 levels. The Zacks Consensus Estimate for Alcon’s 2024 earnings is currently pegged at $3.02 per share.

Our Take

Alcon posted mixed third-quarter results, with better-than-expected earnings but lower-than-estimated revenues. On a positive note, the top line improved on a year-over-year basis. The performance was driven by robust demand for the company’s innovative products, balanced geographic footprint and strong execution by the team. Growth in the Vision Care segment underscores the strength of contact lenses. The expansion of both margins in the quarter is encouraging, too.

Alcon is preparing for product launches that are set to drive its next phase of growth in 2025 and beyond.

Zacks Rank and Other Key Picks

Alcon currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader medical space that have announced quarterly results are Quest Diagnostics Incorporated DGX, ResMed Inc. RMD and Boston Scientific Corporation BSX.

Quest Diagnostics, carrying a Zacks Rank of 2, reported third-quarter 2024 adjusted earnings per share (EPS) of $2.30, beating the Zacks Consensus Estimate by 1.8%. Revenues of $2.49 billion outpaced the consensus mark by 3.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quest Diagnostics has a long-term estimated growth rate of 6.5%. DGX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 3.4%.

ResMed reported first-quarter fiscal 2025 adjusted EPS of $2.20, beating the Zacks Consensus Estimate by 8.4%. Revenues of $1.22 billion surpassed the Zacks Consensus Estimate by 2.9%. It currently carries a Zacks Rank #2.

ResMed has a long-term estimated growth rate of 14.8%. RMD’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 6.4%.

Boston Scientific reported third-quarter 2024 adjusted EPS of 63 cents, beating the Zacks Consensus Estimate by 8.6%. Revenues of $4.21 billion surpassed the Zacks Consensus Estimate by 4.4%. It currently carries a Zacks Rank #2.

Boston Scientific has a long-term estimated growth rate of 13.8%. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.3%.

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