Alcon Fair Shares Still Appear Overvalued

We are raising our fair value estimate for Alcon ALC to $57 per share from $53 to reflect our revised long-term outlook for the company’s markets after reviewing our key valuation assumptions. Alcon is one of the leading visioncare companies in the world and operates in two segments: visioncare and surgical.

Visioncare made up 41% of fiscal 2022 total sales and comprises contact lenses and ocular health products. We forecast mid-single-digit long-term growth for the segment driven by an aging population, an increasing prevalence of myopia (nearsightedness), and a favorable product mix. We have seen an increasing number of wearers choosing daily lenses over reusable lenses and upgrading to silicone hydrogel lenses, two trends that we believe will continue over the next five years. Since daily lenses and silicone hydrogel lenses come at higher price tags and post higher margins, we expect Alcon to enjoy these tailwinds over the long term.

Surgical made up 59% of fiscal 2022 total sales and comprises intraocular lenses, ophthalmic surgical equipment, and consumables used during surgeries. We forecast mid-single-digit long-term growth for the segment driven by increasing life expectancy and an increasing availability of visioncare across the globe. We also expect Alcon to benefit from an increasing penetration rate for advanced technology intraocular lenses, or ATIOLs, because these have higher price tags and margins. The ATIOL penetration rate has doubled over the last 10 years in the United States, from 10% to 20%, and we believe Alcon has some of the best ATIOLs on the market, especially thanks to the recent launches of PanOptix and Vivity. Intraocular lenses have materially higher margins than surgical equipment and consumables, and we model higher sales growth for them over other surgical businesses, so we expect this favorable product mix to help with margin expansion for the segment.