Managed Care Expansion And Digital Trends Will Unlock Value

Key Takeaways

• Expansion of managed care customer base and premium frame offerings are driving higher revenue per transaction and supporting gross margin growth.
  
• Strategic investments in marketing, personalization, and store optimization are enhancing customer retention, operational efficiency, and sustainable earnings growth.
  
• Heightened competition from e-commerce, managed care reliance, and optometrist shortages threaten National Vision's traditional retail model, store productivity, and long-term earnings growth.

Catalysts

Through its subsidiaries, operates as an optical retailer in the United States.

• Expansion of managed care customer base and broader vision insurance adoption is accelerating, as evidenced by the double-digit managed care comp growth and ongoing initiatives to capture more insured customers. This directly supports higher and more resilient patient volumes, expanding top-line revenue and increasing average ticket per transaction.
  
• Increased prevalence of digital eye strain and myopia, driven by rising digital device usage across all age groups, is expanding the addressable market for exams and eyewear; National Vision is capitalizing on this trend with lifestyle-based selling, higher-value assortments, and broader targeting of progressive lens wearers, supporting both transaction frequency and revenue growth.
  
• Investments in CRM, omnichannel marketing, and personalization-enabled by the new Adobe platform-are expected to improve customer targeting, retention, and conversion, particularly in higher income and mid-funnel cohorts, which should translate into increased customer lifetime value and improved comp sales growth.
  
• Ongoing premiumization of the frame assortment (increasing frames over $99 from 20% to 40% of mix) and new designer partnerships (e.g., Jimmy Choo, HUGO BOSS) are driving higher average tickets and validating the ability to move upmarket. This assortment evolution supports both near-term gross margin expansion and a longer-term shift in revenue mix.
  
• Store fleet rationalization and targeted new store openings-combined with leveraging remote exam technology-are driving operational efficiencies, improved store productivity, and expansion of the company's doctor network, which collectively contribute to margin expansion and sustainable earnings growth.

National Vision Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming National Vision Holdings's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.8% today to 4.1% in 3 years time.
• Analysts expect earnings to reach $89.4 million (and earnings per share of $0.6) by about September 2028, up from $-15.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.6x on those 2028 earnings, up from -120.6x today. This future PE is greater than the current PE for the US Specialty Retail industry at 19.2x.
• Analysts expect the number of shares outstanding to grow by 0.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.23%, as per the Simply Wall St company report.

National Vision Holdings Future Earnings Per Share Growth

Risks

• Growing pressure from online direct-to-consumer eyewear brands and the rise of e-commerce in vision care may reduce in-store traffic and commoditize the eyewear market, threatening National Vision's core brick-and-mortar model and putting downward pressure on both revenue and net margins.
  
• The trend of shrinking cash pay customer cohorts, as more consumers migrate to managed care or defer purchases due to economic pressures, could stifle transaction growth and make National Vision increasingly reliant on managed care, thereby constraining future revenue and earnings growth.
  
• Persistent industry-wide shortages and retention risk of optometrists may challenge National Vision's ability to expand doctor coverage, limiting store productivity and increasing labor costs, which could negatively impact operating margins and profitability over time.
  
• Continued reliance on physical retail locations-especially through power centers and co-location with national retailers-exposes National Vision to risks from changing consumer shopping habits, contract/lease non-renewals, and slower demand, raising risks for store productivity and stable long-term revenues.
  
• Margin expansion through price increases and elevated assortment may be unsustainable if economic conditions deteriorate or competitive discounting intensifies, risking reduced traffic, higher promotional activity, and constrained earnings growth, especially as value-conscious consumers react to higher out-of-pocket costs.

Valuation

• The analysts have a consensus price target of $28.85 for National Vision Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $36.0, and the most bearish reporting a price target of just $22.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.2 billion, earnings will come to $89.4 million, and it would be trading on a PE ratio of 33.6x, assuming you use a discount rate of 9.2%.
• Given the current share price of $22.79, the analyst price target of $28.85 is 21.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.