Alcon Earnings: US Surgical Softness Slows Momentum and Drives Guidance Cut

Narrow-moat Alcon's third-quarter results came in largely as we expected. Total sales of $2.4 billion were up 3.7% year on year and a bit shy of our $2.5 billion estimate, but better-than-expected pricing trends and solid cost control helped lift profitability; core EBIT margin of 20.4% was up 110 basis points against last year and 70 basis points sequentially. However, the US surgical market demonstrated some sluggishness and looks to be going into the fourth quarter with this tepid momentum. Against the backdrop of market softness, management lowered its revenue guidance by 1.5% at the midpoint and trimmed the top end of its earnings per share guidance range to $3.05 from $3.10, about 2%. While this seems to have spooked investors, who sent the shares down about 6% on Nov. 12, we maintain our fair value estimate of $75/CHF 64 per share as minimal changes to our estimates were offset by the time value of money.