Alcon Earnings: Raising Fair Value Estimate 5% on a More Positive Outlook; Shares Still Overvalued

Narrow-moat Alcon ALC started the year strong and posted first-quarter results that were better than expected. Total sales were up 7.4% year over year driven by robust demand, strong market conditions, and pricing improvements, somewhat offset by an unfavorable foreign exchange. After slightly raising our near-term forecast given an updated management’s guidance as well as baking in a more favorable long-term outlook given positive commentary from the Capital Markets Day that took place during the quarter, we are raising our fair value estimate to $60 per share from $57. Despite the raised valuation, however, we still see shares that are trading roughly 30% above our estimate as overvalued.

Surgical was up 3.6% as solid performance from consumables and equipment was offset by weak implantables sales. Equipment and consumables benefited from Alcon’s purchase of Ivantis, which closed in January, as the acquisition added Hydrus Microstent, a minimally invasive glaucoma surgery device. While intraocular lens, or IOLs, market conditions remain positive for most countries, South Korea had difficult comparisons due to a change in the reimbursement policy for presbyopia correcting IOLs, or PCIOLs. This caused doctors to stockpile during first quarter of last year and increased out-of-pocket expenses for Korean patients for PCIOLs, dropping sales in the region since the change was enacted. Implantables were down 6%, but excluding Korea, they were up 5%.

Vision care was up 12.3%. Contact lenses continue to benefit from an increasing adoption of silicone hydrogel lenses that carry higher price tags and higher margins compared with traditional hydrogel lenses. Business also gained from share wins and price increases. Ocular health sales climbed 15.3% as the acquisition of Aerie in November 2022 added Rocklatan and Rhopressa, both used to treat high intraocular pressure, deepened Alcon’s portfolio, and bolstered the company’s presence in the ophthalmic pharmaceutical space.