Alcon May Struggle To Meet 2023 Margin Targets With This Latest Acquisition, Says This Analyst

Alcon May Struggle To Meet 2023 Margin Targets With This Latest Acquisition, Says This Analyst
  • Earlier today, Alcon AG ALC agreed to acquire Aerie Pharmaceuticals Inc AERI for around $770 million, or $15.25/share, to be financed with short- and long-term debt. 
  • Aerie's most recent 2022 revenue guidance is $130-140 million, and ALC expects the deal to be accretive to core EPS in 2024. 
  • Needham says it will wait to update the model until the deal closes, which is expected in 4Q22. It keeps the Buy rating with a price target of $85.
  • The analyst believes AERI's glaucoma franchise fits well with ALC's pharmaceuticals portfolio.
  • Needham says the deal is complementary; however, it could make it more difficult for ALC to reach its 2023 and potentially 2025 operating margin targets.
  • Management believes it can reach a low-20% operating margin in 2023 and the mid-20%s in 2025. 
  • While the deal should be accretive to ALC's gross margin, we expect it to be dilutive to ALC's operating margin by at least 2023.
  • Needham downgraded AERI to Hold from Buy, citing that the company was looking at potential M&A exits since the launch of Rhopressa/Rocklatan failed to meet expectations and financing the commercialization amid the slow-growing glaucoma franchise became more challenging.
  • Price Action: AERI stock is up 35.6% at $15.13, and ALC shares are up 0.09% at $68.00 on the last check Tuesday.

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