Is Alcon (SWX:ALC) Offering Value After A 15% One Year Share Price Decline

• Wondering whether Alcon’s current share price gives you fair value for your money, or if you are paying up for quality? This article breaks down what the numbers are actually saying about the stock.
• The shares recently closed at $64.64, with returns of 2.1% over the past week, 0.6% over the past month, 1.7% year to date, and a 15.0% decline over the last year, putting recent moves into a longer term context.
• These mixed returns have sharpened the focus on what is really priced into Alcon today, with investors weighing up company specific developments and broader healthcare sentiment. That tension between shorter term share moves and longer term expectations is exactly why a closer look at valuation has become so relevant.
• On Simply Wall St’s 6 point valuation checklist, Alcon scores a 3 out of 6. This suggests some areas where the stock screens as undervalued and others where it looks more fully priced. We will look at how standard valuation approaches treat this before finishing with a way to think about value that goes beyond the usual ratios.

Alcon delivered -15.0% returns over the last year. See how this stacks up to the rest of the Medical Equipment industry.

Approach 1: Alcon Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model projects a company’s future cash flows and then discounts them back to today’s value, giving you an estimate of what the business might be worth per share.

For Alcon, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow is about US$1.29b. Analysts provide detailed free cash flow estimates for several years, and Simply Wall St then extends these out, with projected free cash flow of US$2.52b in 2030 and a full set of annual projections between 2026 and 2035.

When these projected cash flows are discounted back, the model arrives at an estimated intrinsic value of US$100.39 per share. Compared with the recent share price of CHF64.64, this implies the stock is 35.6% undervalued on this DCF view.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Alcon is undervalued by 35.6%. Track this in your watchlist or portfolio, or discover 886 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Alcon.

Approach 2: Alcon Price vs Earnings

For a profitable business like Alcon, the P/E ratio is a useful way to link what you pay for each share to the earnings the company is currently generating. It gives you a simple sense of how many years of current earnings the market is pricing in.

What counts as a “normal” P/E depends a lot on what investors expect for future growth and how risky they see those earnings. Higher expected growth or lower perceived risk can justify a higher multiple, while slower growth or higher risk usually points to a lower one.

Alcon’s current P/E is 38.06x, compared with the Medical Equipment industry average of 28.49x and a peer average of 25.77x. Simply Wall St’s “Fair Ratio” for Alcon is 39.55x, which is an estimate of the P/E you might expect given its earnings profile, industry, profit margins, market cap and risk factors.

This Fair Ratio can give you a more tailored anchor than a simple peer or industry comparison, because it adjusts for company specific characteristics rather than assuming all firms should trade on the same multiple.

Since Alcon’s actual P/E of 38.06x is slightly below the Fair Ratio of 39.55x, the shares screen as mildly undervalued on this metric.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Alcon Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St’s Community page you can use Narratives to write your own story for Alcon by linking what you believe about its future revenue, earnings and margins to a forecast. This can then be turned into a Fair Value and compared with today’s share price. Narratives are refreshed when new information like news or earnings arrives. One investor might build a bullish Alcon Narrative closer to the higher analyst Fair Value of about CHF98.90, while another might anchor on the more cautious CHF62.32 view, and you can see both side by side to decide which one feels closer to your own assumptions.

Do you think there's more to the story for Alcon? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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