Bausch and Lomb: Stock of the Week

If you think eyeballs will stay in demand, you’ll see this stock is trading at a serious discount.

Andrew Willis 4 December, 2023 | 4:49AM
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Editor's Note: All images are courtesy unsplash.com and AP Images. 

Key Takeaways for Bausch + Lomb Stock:

  • Bausch + Lomb is building exposure to many angles of the eye care segment, recently acquiring an eye drop drug from Novartis often used to treat post-operative dryness after Lasik.
  • The company’s core contact lens segment continues to see demand for premium products, with its overall eye care segment experiencing high-single-digit growth despite lower disposable incomes among consumers.
  • The structure of the new Bausch + Lomb entity allows for more innovation and freedom to invest as well as better leverages existing brand equity and relationships with ophthalmologists.

 

Andrew Willis: Did you know that over 95% of laser eye surgery patients experience dry eyes after the procedure? I don’t want to scare anyone away from the procedure – after all, symptoms do usually improve – but it’s worth noting that Lasik hasn’t proven to be the end to contact lenses as many investors may have feared…

And guess who’s a major provider of drops for dry eyes for patients post-surgery? Bausch + Lomb (BLCO) seems to be positioning itself to cover more of the eye care arena after its acquisition of a second dry eye drug in September.  

Bausch + Lomb is also benefiting from a trend in its more traditional product line, as consumers continue to spend on premium lenses. Equity analyst Keonhee Kim says daily silicon hydrogel lenses remain one of the highest-performing products at the company – which is impressive as the category seems unaffected by high inflation and a potential recession. Consumers seem to be prioritizing their eyes, and it shows in the growth of the vision care segment, which is up 8.5% year over year.

Focus + Flexibility = Bausch + Lomb

After spinning off from Bausch Health just last year, the company is now structured into 3 eye-focused segments: vision care, surgical and ophthalmic pharmaceuticals. As a standalone company, Bausch + Lomb can now freely allocate capital and develop businesses that may have been underfunded previously. The new entity offers a relatively concentrated bet, while its structure is also comprised of complementary relationships – like its eye drop or vitamin product benefiting from the firm’s presence among ophthalmologists - making for one multifocal opportunity.

For Morningstar, I’m Andrew Willis.

 

bulls Bausch + Lomb Bulls Say

  • As a standalone public company, Bausch now has the ability to freely allocate financial resources to innovate and develop businesses that were underfunded under its former parent company.
  • With an upcoming launch of multifocal and toric lenses in the Infuse line (daily silicone hydrogels), we expect Bausch to win over some new customers as well as to have its current Bausch lens wearers upgrade.
  • We expect patents and product superiority of Biotrue eye drops, Lumify, and PreserVision to secure Bausch as a leader in the over-the-counter eye care and supplements space.

bears Bausch + Lomb Bears Say

  • Bausch will face margin pressures from upcoming losses of exclusivity on its pharmaceuticals, and this might hinder its efforts to raise margins to a level comparable with that of its close competitors.
  • Bausch’s full separation depends on its former parent company’s ability to deleverage, and this might interfere with Bausch’s complete autonomy.
  • Bausch has lagged its contact lens competitors in product launches and will have to play catch up, putting pressure on new customer wins and lens switches.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bausch & Lomb Corp20.69 CAD1.22Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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