TLC The Laser Center Still Has Bright Future, Analysts Say
Toronto, Sept. 22 (Bloomberg) -- TLC The Laser Center Inc., which has lost more than half of its market value since mid-July, still has a bright future, analysts said.
The share swoon experienced by Toronto-based TLC is similar to those at its smaller rivals, including Laser Vision Centers Inc., LCA-Vision Inc. and Lasik Vision Corp. All of the companies lost value on concern about lower procedure prices, though there's no evidence of any widespread price war, analysts said.
With the exception of isolated discounts, such as some offered in Baltimore earlier this year, prices are relatively unchanged. The number of corrective-eye procedures performed is increasing, which is leading to higher revenue and profits.
''I don't think there's been any change in terms of the outlook for the industry,'' said David Harmon, publisher of industry newsletter Refractive Market Perspective. The industry is expected to generate US$2 billion in revenue this year and it's still in its infancy, he said.
Mississauga, Ontario-based TLC is the leader, with about 12 percent of the U.S. market, followed by St. Louis-based Laser Vision at 8.5 percent, Harmon said. The industry is still fragmented with about 20 companies and a number of individual doctors and hospitals performing laser-eye procedures, he said.
Refractive-eye treatments use lasers to correct most of the common vision ailments such as near- and far-sightedness as well as astigmatisms. Most people with those ailments can correct them by wearing glasses or contact lenses.
Prices to Decline
While there's no doubt companies have seen their stocks ''beaten up'' in recent weeks, there's no evidence to suggest prices are falling or demand for procedures is waning, said Jeff Rath, an analyst at Canaccord Capital Corp. in Vancouver.
Earlier this month TLC said it performed 87 percent more laser-eye treatments in its fiscal first quarter ended Aug. 31. Rath said that was better than expected. TLC said its average revenue per procedure, after doctors' fees, was US$1,320, compared with US$1,288 in the previous quarter. Rath said that refuted concerns about a drop in prices.
While procedure prices are expected to decline as the business develops, no precipitous drop is expected, analysts said.
Rath, who has a ''buy'' on TLC, said investor expectations for TLC and other laser-eye companies earlier this year pushed price-to-earnings ratios to greater than 100 times. TLC's P/E now is 27.15.
One reason for the stock slide is a dispute between TLC and LCA-Vision Inc. in Baltimore, where a doctor performing the procedures at LCA-Vision switched to TLC, said Harmon.
In response, LCA-Vision cut its prices in Baltimore in a bid to retain business, Harmon said. TLC didn't match the discount. When news of the price cut became known in August, LCA-Vision President Tom Wilson said it was a local event and there were no plans to make it part of a larger price-cutting plan.
It did cause concern among some investors, Canaccord's Rath said.
'Strong Buy'
TLC is showing an ability to maintain its profit margin and remains the referral of choice by doctors as the ''best positioned'' to take advantage of the expected demand for eye procedures, Rath said.
Demand at TLC clinics is expected to rise later this year because of recent partnership agreements it signed with Kaiser Permanente Group and Vision Service Plan, said Dimi Ntantoulis, an analyst at Yorkton Securities Inc. Kaiser is the largest U.S. health-care company. VSP offers health coverage to more than 15,000 U.S. organizations.
The growth is ''still there,'' Ntantoulis said, although investors may wait to see TLC's results. Ntantoulis has a ''strong buy'' on TLC.
The drop in market value of all of the companies in the industry from earlier this year could actually help speed TLC's growth because part of its strategy is to acquire its rivals, Rath said. TLC shares rose C$0.10 (US$0.07) to C$36.10 in late Toronto trading.
TLC yesterday adopted a rights plan to make a hostile takeover prohibitively expensive. The company said it wasn't aware of any bid.
The company is expected to release its fiscal first-quarter results in mid October.
Sep/22/1999 15:48
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