Issued after the close yesterday regarding LCAV:
04:49pm EDT 18-Aug-99 Prudential Securities (K.BOHRINGER 212-778-Issued After The close by Prudential:
1161) LCAV TLC
LCAV: A FLURRY OF SELLING ON OVERBLOWN PRICING CONCERNS PRESENTS BUTING OPPORT
LCAV: A FLURRY OF SELLING ON OVERBLOWN PRICING CONCERNS PRESENTS BUTING
OPPORTUNITY; MAINTAINING MARGIN AND EARNINGS ESTIMATES, STRONG BUY RAYING
R E S E A R C H N O T E S August 18, 1999
Prudential Vector Healthcare Group
Subject: LCA-Vision (LCAV-6 1/2)--OTC
OPINION
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Current: Strong Buy
Analysts: Kenneth C. Bohringer (212) 778-1161
Cynthia J. Capitena (212) 778-8084 RISK: HIGH
12-Month Target Price: $15
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Ind. Div.: - Yield: - Shares: 52.5 mil. 52-Wk.Range: 15-1
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EPS FY Year P/E 1Q 2Q 3Q 4Q
Actual 12/98* ($0.36) ($0.04) ($0.03) ($0.02) $ 0.01
Current 12/99* $ 0.20E 32.5X $ 0.04 $ 0.05 $ 0.05E $ 0.06E
Fully Taxed $ 0.11E NM $ 0.02 $ 0.03 $ 0.03E $ 0.04E
Current 12/00* $ 0.38E 17.1X
Fully Taxed $ 0.22E 29.5X
* As reported.
Average daily trading volume over last 50 days 980,000
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NEW PRICING STRUCTURE IN TEST IN BALTIMORE/ANNAPOLIS MARKET CAUSING UNDUE ALARM
AMONG INVESTORS
In its Baltimore/Annapolis market, LCA has launched a test of a new pricing
structure for LASIK refractive surgery. Under the new arrangement, the price to
the consumer for bilateral (both eyes) LASIK has been lowered to $2,995 from
the previous level of $4,500 in a competitive initiative directed at TLC The
Laser Center Inc (TLCV, not rated), which is also active in this Maryland
market.
Under the new setup, LCA has recruited an eye surgeon to perform the surgeries
on an exclusive basis, paying him a monthly salary, a per-procedure fee between
$150 and $175 depending on the number of cases performed, and taking over his
marketing and advertising expenses. The new pricing structure has been in
effect only since July 12, so data for assessing its success are necessarily
limited.
However, early indications are that volumes are responding quite positively to
the price cut. Management indicates they are on a run rate to reach 500-600 in
the month of August, versus previous volumes in this market in the 200-330/ per
month range. Moreover, the fee structure and LCA's operating cost structure are
such that the price cut has thus far been effected without margin erosion.
We view this move as a challenge to TLC, following the latter company's buyout
of LCA's high-volume producer in the Baltimore market. Given the fact that TLC
has a considerably higher cost structure, it is uncertain just how effectively
it will be able to respond to the LCA pricing initiative.
Obviously, the pricing issue in Baltimore has sent tremors through the laser
refractive sector. In our opinion, this is LCA showing its competitive muscle
and the flexibility it has in responding to individual market conditions. We do
not view it as a change in strategy.
Maintaining Estimates, Strong Buy Rating
In view of the LCAV sell-off and the apparent reason underlying it, we are
reiterating our earnings estimates and our Strong Buy rating on the stock. We
think it worth noting that in the event pricing becomes more aggressive
industrywide, LCA, by virtue of its cost structure, is positioned to benefit at
the expense of the competition as it is currently constituted. |
