National Vision Holdings, Inc. EYE has been gaining from positive comparable store sales (comps) in eyeglasses and contact lens led by increases in both customer transactions and average ticket. The extension of the partnership with Walmart through 2024 looks encouraging. National Vision continues to generate positive results at the five additional Walmart Vision Centers added in 2020. However, the company’s operation in a tough competitive space along with its high dependence on vendors is worrying.
Over the past year, the Zacks Rank #2 (Buy) stock has gained 94.6% compared with 15.3% growth of the industry and 46.5% rise of the S&P 500.
The renowned provider of budget-friendly eye exams, eyeglasses and contact lenses to low-income consumers aims at making eye care and eyewear reasonable for all Americans. It has a market capitalization of $4.17 billion. The company projects 11.8% growth for the next five years and expects to maintain strength in its business segments. The company surpassed estimates in each of the trailing four quarters, the average surprise being 198.26%.
Let’s delve deeper.
Comp Growth Holds Potential: We are optimistic about National Vision’s continuous positive comps growth in the pre-pandemic stage. For June through December 2020, the company generated 12.6% growth, the best reported comp increase over the past 18 years. In the fourth quarter of 2020, adjustable comparable store sales growth increased 10.6%. Considering comps growth in early 2020, National Vision opened five new stores during the fourth quarter, highlighting a 4.7% increase in store count over the past year.
Strategies for 2021 Look Promising: We are upbeat about National Vision’s plans to continue executing on core growth initiatives and investing to strengthen competitive advantages. The company plans to return to normalized growth in 2021 and open approximately 75 stores. The company has a solid pipeline of specific locations to open new stores for 2021 and 2022. Moreover, the company will stay focused on investing in television advertising and digital marketing. National Vision’s lab network is well-positioned with the capacity in place to handle the projected 2021 requirement. The company is also focused to be a key low-cost provider.
Favorable Industry Trends: We are also upbeat about National Vision’s growth led by favorable industry trends. Per a report by Global Market Insights, the global eyewear market size was valued at more than $120 billion in 2018 and is expected to witness a CAGR of 5% between 2019 and 2025.
Research shows that the COVID-19 pandemic has positively impacted eyewear adoption trends in 2020. Implementation of work from home (WFH) models by several companies has resulted in people spending more time on their laptops, desktops, and mobile phones, which resulted in eye fatigue, necessitating the need to use vision correction and anti-fatigue glasses. This resulted in overall market growth.
However, National Vision operates in a highly competitive optical retail industry. The companies within the industry compete based on recognition of the brand name, price, convenience, selection, services and product quality.
Moreover, the company has ties with a very limited number of suppliers for majority of its eyeglass frames, eyeglass lenses and contact lenses. Thus, high dependence on a limited number of suppliers exposes it to concentration of supplier risk.
National Vision has been witnessing a positive estimate revision trend for 2021. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 11.1% north to 90 cents.
The Zacks Consensus Estimate for the company’s first-quarter fiscal 2021 revenues is pegged at $517.9 million, suggesting 10.3% growth from the year-ago reported number.
Other Key Picks
A few other similar-ranked stocks from the broader medical space are Integer Holdings Corporation ITGR, Cantel Medical Corp. CMD and Apria, Inc. APR, each carrying a Zacks Rank #2. You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.
Integer Holdings has a projected long-term earnings growth rate of 22%.
Cantel Medical has a projected long-term earnings growth rate of 19%.
Apria has an estimated long-term earnings growth rate of 16%.
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Integer Holdings Corporation (ITGR): Free Stock Analysis Report
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