Let's post both sides of the coin on this thing okay?
Industry Analysis
Aug 16, 1999
Consumer: Bausch & Lomb Investors: Eyes Wide Shut
By Craig Schneider (8/16/99)
Investors who bought into the idea of Bausch & Lomb (NYSE:BOL - news) leaping into the laser vision correction (LVC) industry may want to have their eyes checked.
Over the last three months, shares of the lens and eye care company dropped about 24% -- triggered in part by uncertainty about whether the Food & Drug Administration would require B&L's Technolas 217 laser to be reviewed by the agency's Ophthalmic Devices Panel.
LVC machines use lasers to reshape the cornea and permanently return your sight to perfect or near-perfect vision in a matter of minutes.
Then over the last two weeks of the sell-off, analysts at firms including Goldman Sachs and Lehman Brothers jumped to the company's defense, reiterating their 'buy' recommendations and $90 price targets.
Presto-Change-O!
Shares of B&L jumped almost $5 last Wednesday and closed near $69 after the company expressed confidence that the FDA won't require a panel, indicating a speedier time to market for the Technolas 217.
Why the confidence?
B&L cited prior panel reviews of similar lasers by other companies as well as the quality and quantity of its clinical data, and the fact that its application review process has recently progressed to the labeling review.
Not so fast Bausch & Lomb.
Jeanie Prego, a spokesperson for the FDA, says that making a statement like the one made by B&L is entirely up to the company. 'It's their application,' she adds, 'and we [by law] can't give any acknowledgement.'
Sheryl Zimmer of Deutsche Banc wrote in a recent report that if no FDA panel is required for Technolas 217 that it could be approved in about 60 to 90 days. On the other hand, she noted that B&L's laser could still end up on the September 23-24th panel or be bumped onto the next panel on November 18-19th.
You know what? It's really not worth hanging around to see what happens.
Let's put this in perspective. Assuming the FDA does allow the laser to go without panel review, Marc Goodman of Morgan Stanley Dean Witter says most analysts haven't assumed more than $10 million in revenue from the laser sales next year. That's a tiny amount, or just 0.55%, of the $1.8 billion total revenue expected for next year, by McDonald Investments' Hans von der Luft.
If you love the idea of investing in laser manufacturers, look elsewhere.
Do not buy Bausch & Lomb stock if the LVC industry excites you. Visx Inc. (NASDAQ:VISX - news) and Summit Technology's (NASDAQ:BEAM - news) lasers have about an 80/20 market-share split and a 75/25 ratio for new market penetration.
But let's say there's room Bausch & Lomb to join the LVC fray. Well, B&L at this early stage is only having its laser approved for a narrower range of uses (low myopia versus the broader low-to-high myopia capability of its competitors). And even if it did have the full range, B&L's narrow beam technology is no different from Summit's narrow beam.
Lumbering Blue Chip
Unfortunately, the mention of laser vision correction is only doing wonders for B&L's image. In reality, Bausch & Lomb remains a lumbering blue chip with earnings per share growth of 11% expected in 2000, less than half the growth expected in 1999. With B&L stock at a recent $68.75, shares are trading at 24.6 times the $2.79 earnings per share (EPS) estimate for 1999 and trades at 22.1 times next year's $3.10 EPS estimate.
Can you say overvalued?
There's less company to hang your hopes on, too. In late-July, B&L announced the sale of its Charles River Labs, a profitable research laboratory animal and service business. This effort, however, did not sit well with investors, in part, because it came with a $0.15-$0.20 per share dilution to 2000 earnings estimates.
And early last month, B&L announced the sale of its Miracle Ear hearing-aid business, just one month after the completed $640 million sale of its popular Ray-Ban sunglasses unit.
So what does B&L have to fall back on aside from brand name recognition? Vision care, B&L's biggest division, has been a high cash flow generator with operating margins north of 20%, but von der Luft is only expecting a modest 8% increase in 1999 over last year to $1.05 billion. Vision care refers to the company's contact lens and lens solutions products.
The analyst is also projecting the pharmaceutical unit to increase 23% to $300 million in 2000, and the surgical unit, which will include the laser, is expected to rise 12% to $430 million.
Bottom Line:
Bausch & Lomb is not the place to pin your hopes on the LVC industry. In fact, we wouldn't suggest pinning anything on the company at the moment.
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H and Q reiterated their buy recommendation today on JagNotes too. I wonder why.....They have 600K shares to sell that was their part of the secondary at 16..LOL and the SEC comes after some little guy that hypes a stock...give me a break!
Ken |
