National Vision Holding Company (Eye – Free Report) of the opening of new stores for the best brands in America and the world of eyeglasses during the third quarter of 2021. The company plans to invest in television advertising and optimism in digital marketing. A stable solvency situation also bodes well. However, rising expenses and intense competition are causing concern.
Over the past year, the No. 3 (Hold) Zacks stock has charted a strong trajectory, rising 2.1% compared to a 3.6% decline for the industry and a 29.7% rise for the S&P 500 Composite.
The market capitalization of the popular American optical retailer is $3.97 billion. Its third-quarter earnings beat the Zacks consensus estimate by 52%.
The company’s projected long-term growth rate is steady at 22.2%, compared to the industry’s forecast of 17.6% and the S&P 500’s estimated growth of 11.7%.
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Let’s go deeper.
Factors at play
Growth strategies look promising: The National Vision plans to continue implementing core growth initiatives and more investments to enhance competitive advantages, which increases our optimism. The company had a strong start with an opening of 14 in the third quarter. During its third-quarter earnings update, the company indicated that it has the potential to nearly double its existing store footprint through two attractive growth drivers in America, Best and Eyeglass World. The company has a strong pipeline of locations set to open new stores for 2021 and 2022, as its laboratory network remains well positioned to meet projected 2021 requirements. The company is also focused on investing in TV advertising and digital marketing.
Encouraging new store growth: We are optimistic about the opening of the new National Vision stores during the third quarter. The company has opened 14 new stores in America and two Eyeglass World stores with a total of 1,262 stores so far, up 5.1% over last year’s tally. Consolidating the top growth brands in America and the world of eyeglasses, the unit has increased nearly 7% in the past year. The company opened 59 new stores year-to-date, and had plans to open 75 new stores during 2021.
stable solvency position: National Vision exited the third quarter in cash and the equivalent of $431.9 million. Meanwhile, the total debt amounted to $620 million, which is well above the level of cash and cash equivalents at the end of the year. However, the company had $4.4 million of short-term debt on its balance sheet at the end of the third quarter. This is good news in terms of the company’s solvency position, as at least during a downturn year the company has enough cash to pay off debt.
Escalating costs: During the third quarter, National Vision’s general, administrative and sales expenses increased 14.5% year over year. The increase was due to higher equity compensation expense, increased performance-based incentive compensation, and increased advertising investment. The company’s escalating expenses are putting pressure on the bottom line.
tough competition: National Vision operates in the highly competitive optical retail industry. Companies in the industry generally compete on the basis of brand name recognition, price, convenience, selection, service and product quality. The competition exists in physical retail sites along with e-commerce platforms.
Great Reliance on Sellers: National Vision buys almost all of its merchandise from local and international sellers. Furthermore, the company has relationships with a very limited number of suppliers for most eyeglass frames, eyeglass lenses and contact lenses. Thus, heavy dependence on a limited number of suppliers exposes them to supplier risk concentration. The company may find it difficult to find an alternative source of procurement in a timely or cost-effective manner during difficult times.
Zacks Consensus’ estimate of National Vision’s fourth-quarter earnings is pegged at 24 cents, indicating a 46.67% drop from last year’s figure.
Meanwhile, Zacks Consensus estimates for its 2021 revenue held at $2.1 billion, indicating a 19.83% increase over last year’s figure.
Few of the top-rated stocks in the broader medical field that investors can consider Apollo Endosurgery, Inc. (monkeys – free report), Cerner Corporation (CERN – free report) and West Pharmaceutical Services, Inc. (WST – Free report), each rated Zacks #2 (Purchase). you can see The full list of Zacks #1 stocks (strong buy) today is here.
Apollo Endosurgery achieves a long-term earnings growth rate of 7%. The company’s earnings beat estimates in the subsequent four quarters, delivering a surprise 25.6% on average.
Apollo Endosurgery has topped the industry for the past year. APEN posted a gain of 132.2% compared to an industry growth of 12.6%.
Cerner has a long-term earnings growth rate of 13.3%. The company’s earnings have exceeded estimates in the last three of the last four quarters and have missed estimates in one. Cerner posted a surprise fourth-quarter profit of 3.2% on average.
Cerner has outpaced its industry in the past year. CERN gained 19.5% versus the industry’s 38.2% decline.
West Pharmaceutical has a long-term earnings growth rate of 27.6%. The company’s earnings beat estimates in the subsequent four quarters, delivering a surprise average of 29.4%.
West Pharmaceutical outperformed its industry last year. WST is up 64.2% compared to the industry’s rise of 17.1%.