Earlier this week, Switzerland-based eye care company Alcon Inc. (ALC - Get Rating) announced its entry into a definitive agreement to acquire Aerie Pharmaceuticals, Inc. (AERI) for $770 million.

Through this acquisition, ALC will add commercial products like Rocklatan and Rhopressa. It will also add AR-15512, a phase 3 product candidate for dry eye disease, and a pipeline of several clinical and preclinical ophthalmic pharmaceutical product candidates.

ALC’s CEO David Endicott said, “Aerie is a natural fit with on-market and pipeline products and R&D capabilities that offer the infrastructure needed to expand our ophthalmic pharmaceutical presence.”

However, ALC has declined 5.8% over the past month and 20% year-to-date to close the last trading session at $69.74. It is currently trading 21.4% below its 52-week high of $88.78, which it hit on December 29, 2021.

Here’s what could influence ALC’s performance in the upcoming months:

Mixed Financials

ALC’s net sales increased 5% year-over-year to $2.2 billion for the second quarter ended June 30, 2022. The company’s operating income declined 12.6% year-over-year to $200 million. Its net income fell 1.9% year-over-year to $148 million. In addition, its EPS declined 3.2% year-over-year to $0.30.

Favorable Analyst Estimates

ALC’s EPS for fiscal 2022 and 2023 is expected to increase 6.9% and 14.8% year-over-year to $2.30 and $2.64, reviewed. Its revenue for fiscal 2022 and 2023 is expected to increase 5.6% and 5.4% year-over-year to $8.76 billion and $9.24 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters.

Mixed Valuation

In terms of forward P/B, ALC’s 1.76x is 36.7% lower than the 2.78x industry average. Likewise, its 3.90x forward P/S is 22.4% lower than the 5.03x industry average.

However, the stock’s 4.28x forward EV/S is 0.2% higher than the 4.28x industry average. Also, its 16.77x forward EV/EBITDA is 20.5% higher than the 13.91x industry average.

POWR Ratings Reflect Uncertainty

ALC has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. ALC has a C grade for Value, in sync with its mixed valuation.

It has a B grade for Stability, consistent with its 0.66 beta.

ALC is ranked #57 out of 145 stocks in the Medical – Devices & Equipment industry. Click here to access ALC’s ratings for Growth, Momentum, Sentiment, and Stability.

Bottom Line

The acquisition of AERI will help ALC expand into the ophthalmic pharmaceutical space. However, the stock is trading below its 50-day and 200-day moving averages of $71.38 and $76.09, indicating a downtrend. Moreover, given its mixed financials and valuation, it could be wise to wait for a better entry point in the stock.

How Does Alcon Inc. (ALC) Stack Up Against its Peers?

While ALC has an overall POWR Rating of C, you might want to consider investing in the following Medical – Devices & Equipment stocks with an A (Strong Buy) or B (Buy) rating: FONAR Corporation (FONR - Get Rating), Abbott Laboratories (ABT - Get Rating), and InfuSystem Holdings, Inc. (INFU - Get Rating).

ALC shares were trading at $68.70 per share on Friday morning, down $1.04 (-1.49%). Year-to-date, ALC has declined -21.14%, versus a -12.04% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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