Alcon Inc. (ALC Quick QuoteALC - Free Report) is gaining from the strength within the Surgical and Vision Care businesses. The company ended third-quarter 2021 with better-than-expected results. The launch of Precision1 and Precision1 for astigmatism buoys optimism. A good solvency position bodes well for the stock. However, escalating expenses and stiff competition raise apprehension.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 32.1% compared with 7.7% growth of the industry and 39.9% rise of the S&P 500 composite.

The renowned global medical device company has a market capitalization of $41.63 billion. Its third-quarter 2021 earnings surpassed the Zacks Consensus Estimate by 10.2%.

The company expects earnings growth rate of 14.8% for the next year which compares to the industry’s growth projection of 19.0%. This figure also compares to the S&P 500’s estimated 9.5% rise for the next year.

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Let’s delve deeper.

Key Drivers

Vision Care Returns to Growth: Alcon’s Total Vision Care arm reported third-quarter sales growth of 49% year over year (up 44% at CER). It is worth noting that the Vision Care business returned to growth over the 2019 levels in the reported quarter. Despite a variable recovery in international markets, new product launches are gaining momentum and expanding Alcon’s market share. The launch of Precision1 and Precision1 for astigmatism contributed to contact lens growth in the reported quarter. Growth in ocular health was led by Systane and Pataday, primarily benefiting from the recent launch of Pataday Extra Strength.

Stable Solvency Structure: Alcon exited the third quarter with cash and cash equivalents of $1.57 billion. Meanwhile, total debt came at $4.11 billion, much higher than the corresponding cash and cash equivalent level. However, on a positive note, the company has short-term payable debt of $136 million on its balance sheet, which is significantly lower than the present level of cash in hand. This is good news in terms of the company’s solvency position, particularly during the pandemic when it is majorly facing manufacturing and supply halt globally.

Q3 Upsides: Alcon reported better-than-expected earnings and revenues for the third quarter. The year-over-year growth across all sales categories in Surgical and Vision Care businesses was driven primarily by growing demand for new products, solid commercial execution and strong market recovery in the United States. Robust uptake for cataract refractive equipment within Surgical business buoys optimism. In Vision Care, the company’s new contact lenses are gaining market share and the Systane brand family is posting strong double-digit growth in all regions. Expansion of gross margin is an added advantage.

Downsides

International Performance Concerning: Within Surgical business, excluding India, the global market was down mid-single-digits during the third quarter compared to 2019. The international markets remained down high-single-digits, primarily due to emerging markets in Japan, which continue to be suppressed. In the Vision Care business, international markets are yet to return to 2019 levels.

Escalating Expenses: In the third quarter, cost of net sales for Alcon was up 2.5% year over year. Meanwhile, selling, general & administrative expenses shot up 13.7%. The company currently invests in research & development (R&D) to deepen its new product pipeline with advanced eye care innovation, as R&D expenses increased 47.2% in the reported quarter. This is continuously putting pressure on Alcon’s bottom line.

Tough Competitive Landscape: Alcon faces intense competition in the surgical business from a mixture of competitors, ranging from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of specialized products. Alcon operates within a highly competitive environment in the vision care business, as growing product entries from contact lens manufacturers in Asia continue to pose a massive threat.

Estimate Trend

Alcon is witnessing a positive estimate revision trend for the current year. Over the past 60 days, the Zacks Consensus Estimate for the company’s earnings has moved 1.5% north to $2.09.

The Zacks Consensus Estimate for fourth-quarter 2021 revenues is pegged at $2.07 billion, suggesting a 7.8% surge from the year-ago reported number.

Key Picks

A few better-ranked stocks in the broader medical space are Apollo Endosurgery, Inc. , Varex Imaging Corporation (VREX Quick QuoteVREX - Free Report) and Thermo Fisher Scientific Inc. (TMO Quick QuoteTMO - Free Report) , each sporting a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apollo Endosurgery has a long-term earnings growth rate of 7%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 25.6%, on average.

Apollo Endosurgery has outperformed its industry over the past year. APEN has gained 131.2% versus the 7.7% industry growth.

Varex has a long-term earnings growth rate of 5%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 115.3%.

Varex has outperformed the industry it belongs to in the past year. VREX has gained 79.4% versus the industry’s 6.2% fall.

Thermo Fisher has a long-term earnings growth rate of 14%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 9%.

Thermo Fisher has outperformed its industry over the past year. TMO has rallied 40.7% versus the industry’s 7.7% rise.