Alcon (ACL): An eye on world's largest eye care firm

"You may not have your eye on Alcon (NYSE: ACL)," notes global expert Frida Ghitis, adding, "But if you wear contact lenses, suffer from dry eyes, worry about glaucoma, or even if you have hay-fever, you may have bought its products."

Here, the contributing advisor to Vivian Lewis' Global Investing, explains, "This Swiss eye drug giant has its eyes on both the bottom line and its pipeline."

"As the world’s largest eye care company, ALC has excellent management, stellar performance, promising demographics, and an intriguing ownership structure.
 
"Demographics bode well. Aging eyes need attention. Demand will rise for glaucoma medication, dry eye treatments, and other Alcon top sellers. As emerging markets grow their middle class, eye-care will be affordable by millions more people.
 
"ACL sells at about a 28 P/E, and at 1.9 PEG, a little high but in line with its industry. It carries strong and growing profit margins. In Q1, operating profit margins rose to an impressive 32.6 % of sales.
 
"A big part of earnings come from contact lens solutions., so you might worry that laser eye surgery, could threaten Alcon. But ACL already makes its own surgical machine for Lasik, and sells expensive post-op medications to the millions who have Lasik surgery.
 
"Beyond eye care, the FDA just approved Alcon’s Patanol, a nasal allergy spray, already making major inroads in Japan and on the way to the U.S. In Japan, Patanol’s market share is 22 %. The U.S. nasal allergy market approached $3 bn in 2007, becoming larger each year.
 
"ACL operates in 75 countries and distributes in 180, practically the entire world. Sales are equally divided between the U.S. and the rest of the globe. The company invests heavily in R&D and marketing, and recently announced construction of a massive new facility in Singapore to reduce the costs in the booming Asian market.
 
"Growth shows steady improvement all over which we expect to continue. Sales in 2007 totaled $5.6 bn, with earnings of $1.6 bn, or $5.25 per share. For 2008, ACL has hiked sales projections to $6.4 bn-plus, with 2008 EPS guidance of $6.39-plus, a 27%-plus increase.

"Already this year is beating expectations. Q1 brought a sharp rise in earnings, up 24% y-o-y. Some resulted from currency fluctuations. If the dollar strengthens and non-U.S. sales continue to grow faster, growth could ease a bit.
 
"ACL started in Fort Worth in 1945. Incorporated in Switzerland after Nestlé bought it in 1978, it runs U.S operations from its birthplace. In 2002, Nestlé raised cash by selling 25% of Alcon on the NYSE.

"Ownership is changing again. Last month, Swiss Novartis (NYSE: NVS) agreed to buy 25% of ACL from Nestlé for $11 billion with an option to acquire Nestlé’s remaining 52%. Nestlé also has a put option for NVS to buy the rest of its ACL for an additional $28 bn.

"For now, NVS says it has no plans to buy the public 23%. That could change and give a major boost to share prices.  Overall, Alcon has performed consistently over the years. It could become a portfolio mainstay, unless NVS offers to buy us out, in which case we could reluctantly and profitably cash in."