OVERVIEW: A Beat and Not Raise Enough
Similar to 1Q21, EYE reported strong above-consensus results and raised 2022 guidance, but left the implied second half guidance below consensus and at a level that embeds flat comps and management's view for sequential slowing. Our view is that there still exists a large pool of pent-up demand for many types of medical care including eye care, and even as EYE outperformed in the 1H21, there is more to come in 2H21 and into 2022. Corrective vision is just one of many categories of medical demand that has been impacted by the pandemic.
After beating 2Q21 and raising the year, implied second-half guidance of $951M is $38M lower than the second-half consensus of $987M, which led to early softness in the share price today. Many of the questions during the earnings call Q&A probed the remainder of the year, the impact of the delta variant, embedded assumptions, confidence level, conservatism, etc. Again, if we're right, we should expect to see positive 2H21 volume growth, and our sense, inclusive of management's commentary on the call, is that guidance is low.
YTD 2021, Delta Variant, Starting Line is Still Ahead: In 1Q21 we had broad-based deceleration across the US Medical Economy as the Fall 2020 wave of COVID-19 cases peaked in January 2021 and suppressed medical utilization for the first 2 months of the quarter. As vaccinations took hold the population deferring care dropped from 35% to 20% and 1Q21 and early 2Q21 were strong. The Delta variant emerged in early June and has taken over infections across the United States while also driving substantial outbreaks across states with low vaccination rates (primarily across the south/southeast). As of this morning, we are seeing ED visits for COVID-like-illness (CLI) drop in some of these southeast states where the outbreaks are concentrated, which is a great early sign that COVID cases and subsequent hospitalizations have peaked. We expect improvements in problem locations as vaccination rates rise in response to local case volume and vaccination rates approach levels seen in high vaccination rate states where the delta variant has had a far more modest impact.
For EYE and other names in our #reopen theme we think it's likely we'll see the current delta variant peak in 2-4 weeks, in time for a late 3Q21 volume ramp that continues into 3Q21 earnings reports and guidance. We'd expect the upside to also get translated into 2022 estimates more broadly, something we have not seen so far in 2Q21 earnings season.
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Best,
Thomas Tobin
Managing Director
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