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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