This eyecare company is forecasted to grow by 16% next year.
Alcon, Inc. (ALC)
From Power Growth Investor
Alcon, Inc. (ALC, TSINetwork Rating: Extra Risk) offers investors two exciting ways to profit. Not only does it give you exposure to rapidly expanding, worldwide demand for its contact lenses and cataract surgery products, but its global operations and technological leadership enhance the possibility of it attracting a lucrative takeover bid. That could come from a rival or a global health-care giant.
Swiss pharmaceutical giant Novartis spun off Alcon just last year. And as we’ve said many times before, spinoffs are the closest thing you can find to a sure thing, regardless of market ups and downs.
We believe trends now underway—including Alcon’s strong position in its key markets—have set its sales, profit and share price on a strong growth path. We recommend this stock as a Power Buy.
Alcon is the world’s biggest eye-care company. Specifically, it’s the leader in ocular surgical supplies and No. 2 in contact lenses.
While Alcon is based in Switzerland, it is headed by an American, reports its results in U.S. dollars, and gets 40% of its sales in that market. It also generates 25% of its overall revenues from emerging markets, one of the highest percentages among its rivals in the industry.
Independent since last year, the company produces ophthalmic surgical devices under various brands; investors should note that this is a rapidly expanding and lucrative market driven by several growth factors:
• Aging baby boomers and the resulting demand in developed markets for cataract and vitreoretinal procedures. (The latter refers to any operation to treat eye problems involving the retina, macula, and vitreous fluid. These include retinal detachment, macular hole, epiretinal membrane and complications related to diabetic retinopathy.)
• Increased access to eyecare in emerging markets where the cataract surgery rate is currently about a quarter of the U.S. rate. Key markets are China, Brazil, and Russia—where greater affluence is leading to increased demand for cataract surgery.
Alcon also makes contact lenses and ocular health products, which includes dry-eye and red-eye treatments, and contact-lens care. Key growth drivers of interest to investors include: a consumer shift to disposable lenses from reusable lenses; a significant population of undiagnosed dry-eye sufferers; increasing use of vision-care products in emerging markets such as Asia, which has only 3% contact-lens penetration compared to 15% for the U.S.; and rising consumer access through expanding distribution, including online sales and other direct-to-consumer channels.
In the quarter ended September 30, 2019, Alcon’s revenue rose 4.5%, to $1.84 billion from $1.76 billion.
Excluding one-time items, per-share earnings in the quarter fell 8.0%, to $0.46 from $0.50, on higher costs. However, following a comprehensive review, Alcon has identified significant efficiency improvements that should boost its profits and pay off for you. Alcon also spends a high 10% of its sales on research, which makes it appear less profitable than it really is.
This Power Buy currently trades at a high 31.5 times its forecast 2020 earnings of $2.01 a share. That p/e reflects keen investor interest in its upward growth path as it expands into new markets and services.
Tapping into key energizers, like an aging population, greater wealth globally, and technological changes that make it hard for new entrants to crack its markets, all bode well for Alcon’s share price and its investors.
What’s more, the company is now without a controlling shareholder for the first time and it could become an attractive takeover target for other health-care companies looking to enter or expand in the eye-care market.
Patrick McKeough, Power Growth Investor, www.tsinetwork.ca, 888-292-0296, March 2020