Solution is dripped onto soft contact lens closeup

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Introduction

Bausch + Lomb ( NYSE: BLCO )( TSX: BLCO: CA ) is one of the oldest operating companies in the US, having been founded in 1853 as a small optical goods store within New York. In the early years, the company produced rubber eyeglass frames and a variety of optical products that required a high degree of manufacturing precision. The company made lenses for cameras that captured the first satellite image of the particular moon, and during World War II, Bausch + Lomb made sunglasses for the United States military. It later sold its popular Ray Ban segment to the Luxottica Group in 1999.

Currently, the company manufactures plus distributes contact lenses, eye drops and ophthalmic medicines and has a portfolio of more than 400 products offered in nearly 100 countries.

Soft lens and vision drops are a consumable items, consumables deliver a stable revenue stream. The organization offers a variety of lenses that provide a competitive advantage for every type of consumer.

Consumers are quite clingy in the choice of lens and attention drops. If a type associated with lens fits just fine, we stay true to it. We tend to buy this until the product no longer meets our expectations. I wear lenses myself and because I spend a significant amount of time in front of the screen, I prefer lenses with a low water content. It’s a personal choice of course.

The long-term outlook looks bright due to the strong catalysts, but the short-term outlook is mixed because of the IPO lock-up date.

I would wait to see what September brings plus gradually load-up shares within the months thereafter. The stock is then a strong buy with the price target of $26.

Business Overview

Bausch + Lomb operates globally because an eyesight health organization. They offer eye care products such as contact lens and ocular health products. In addition to their eye treatment products, the company also sells surgical items. Bausch + Lomb develops, manufactures and distributes surgical vision enhancement systems.

Sales are divided into the particular Vision Care segment (63%), the Surgery segment (20%) and the Ophthalmology segment (17%).

The Company Offers A Variety Of Lenses That Provide A Competitive Advantage

Bausch + Lomb is still a little player in the lens market. Johnson & Manley ( JNJ ) controls most of the market with Acuvue. This is an advantage for Bausch + Lomb as it provides the opportunity to differentiate itself within the market in order to gain market share.

Soft Lenses Market Share Overview- 2Q22 Investor Presentation, Cooper Vision

Soft Lenses Market Share Overview (2Q22 Investor Presentation, Cooper Vision)

Office workers usually prefer lenses with a low water content. These absorb less eyes fluid, so that the eye remains sufficiently wet when concentrated. Most consumers prefer lenses with a medium drinking water content (about 50%). Other consumers choose lenses along with a high water content. It is the personal option.

Bausch + Lomb offers a range of high-quality lenses, which are lens with a high oxygen permeability for long-term wearing comfort. These lenses allow a lot of o2 through, so that the particular eyes are usually less tired in the evening, these lenses are often made of silicon hydrogen.

High Quality Lenses

Bausch + Lomb offers the following high-quality lenses:

Name

Type

Introduction year

Water content material

Oxygen permeability [dK/t]

ULTRA ONE Day (Infuse)

Daily disposable lens

2020

55%

134

Biotrue ONEday

Every day disposable lenses

2014

78%

42

Purevision 2

Monthly lenses

2011

33%

138

ULTRA

Month-to-month lenses

2014

46%

163

Bausch + Lomb has a competitive benefit over the following get in touch with lenses:

  • SUPER One Day (Infuse) daily disposable contact lenses
    • Most advanced specifications with regard to the average consumer available on the market.
    • Most expensive lenses on the marketplace. About 50% more expensive than close competitors CooperVision Clariti 1 Day, plus J& J Acuvue Trueye one day.
  • Bausch + Lomb Biotrue ONEday every day disposable get in touch with lenses
    • The 1st contact lens ever produced with the same amount of water as the human eye.
    • In contract to rivals, this zoom lens has a high oxygen permeability.
    • Price will be only slightly more expensive compared to close competitor Dailies AquaComfort Plus.

The other two contact lenses that Bausch + Lomb offers are less competitive. Purevision 2 monthly lenses compete with Alcon’s ( ALC ) more well-known Air Optix Plus Hydroglyde and Air Optix Aqua. The price is comparable to Air flow Optix Aqua, so it’s more of the personal selection here. EXTREMELY monthly lens compete along with CooperVision’s ( COO ) more popular Biofinity (and Biofinity Energys). But ULTRA is usually 50% more expensive than Biofinity and about 15% more costly than Biofinity Energys. In general, monthly contact lenses are much cheaper than everyday contact lenses. The 50 percent price increase relates to an increase associated with only €5/month here in the Netherlands (about $5 within the US). It is definitely an individual choice to choose ULTRA or Biofinity (or Energys). Strong growth or at least stability in sales can be expected within lenses with a competitive advantage.

Budget Contact Lenses

Budget contact lenses have a low air permeability, get in touch with lens wearers are a lot more likely in order to get exhausted eyes, especially in the particular evenings. Bausch + Lomb provides the subsequent lenses:

Name

Type

Intro year

Water content

Oxygen permeability [dK/t]

SofLens Daily Disposable

Everyday disposable lens

2008

59%

22

SofLens 38

Monthly Lenses

1993

38%

27

SofLens 59

Monthly Lenses

2018

59%

twenty two

SofLens 38 is certainly the only affordable month-to-month lenses available with the low water content. Bausch + Lomb has a competitive advantage upon all affordable lenses in this category because these types of lenses are usually the most affordable lenses on the market.

To Summarize

I expect continued growth for ULTRA ONE DAY (also called Infuse) because these contact lenses have the most sophisticated specifications and are suitable for the high-end consumer. The particular Biotrue ONEday (daily disposable lenses) are suitable regarding the average customer who suits lenses with a high-water content well. Because the price is attractive compared to the lenses of competitors, We expect continued growth in this market.

I actually expect at least stability or even growth within the budget market, especially during an economic recession. Bausch + Lomb offers the most affordable budget lenses in the marketplace, which should be favorable during tough times.

However , these assumptions simplify the choice of the particular many types of lenses in the marketplace. Each lens is unique: the thickness, wetting agents, UV resistance and the like all contribute to putting on and viewing comfort. Some lenses are usually 50% more expensive compared to others, while the water articles and oxygen permeability are almost the same. Is it worth paying 50% a lot more for lenses that include a wetting agent, UV level of resistance filter, or a different thickness? That ultimately determines the consumer.

It is therefore difficult to make a good comparison. Choosing lens remains a personal choice, yet I hope this has given you rough guidelines as to how Bausch + Lomb stands in the market in my view.

What I find interesting about Bausch + Lomb is that the company dominates the entire budget marketplace. US GDP has fallen, a recession is looming and customers can save on their disposable lenses and opt for Bausch’s. Along with dominating the budget market, Bausch + Lomb innovate strongly by offering new top-quality lenses that are way ahead of their competition. In addition to the sale of get in touch with lenses, Bausch + Lomb monthly lenses are cleaned with lens solution, which gives an extra boost to sales. Bausch + Lomb clearly provides products along with a competitive advantage and I expect them to continue in order to grow within sales 12 months on yr.

Now all of us know roughly how Bausch + Lomb stands on the market compared to competitors, but is that also reflected in the revenue?

Vision Treatment And Surgical treatment Segment Grows Strong In Q2 22

In the particular table below, I’ve written the top 10 product revenues and their own year-over-year development. From the contact lenses sales segment, the most affordable SofLens series lenses generate probably the most revenue, but they are losing popularity as income fell 2% year-over-year. Within second place is Biotrue ONEday, with sales growing 9% year-over-year. Third comes ULTRA lens and product sales grew 5% yoy. These are the lenses that have the competitive advantage.

Top 10 Revenues, Bausch + Lomb - 2Q22 Results And Author's Own Calculations

Top ten Revenues, Bausch + Lomb (2Q22 Results And Author’s Own Calculations)

The sales of SUPER lenses consist of EXTREMELY monthly lenses (launch 2014) and ULTRA one-day lens (new launch). The new ULTRA one day lenses reported solid sales growth and Bausch + Lomb expects peak sales in order to exceed $250 million. The new ULTRA throw away contact lenses are made of SiHy materials. And according to Bausch + Lomb, the global SiHy market will be growing at a CAGR associated with ~11%. The lenses are usually clearly in a growing market for the particular coming years.

Soft Contact Lenses Highlights - 2Q22 Investor Presentation

Smooth Disposable lenses Highlights (2Q22 Investor Presentation)

The particular organic consolidated sales development of 6% was primarily driven by strong growth in Vision Care and strong development in the Surgical segment.

Sales growth within the Ophthalmology segment decreased year upon year. Mainly caused simply by loss of exclusivity products and generic performance plus competition.

Financial Highlights and Segment Drivers - 2Q22 BLCO Investor Presentation

Financial Shows and Segment Drivers (2Q22 BLCO Trader Presentation)

Upcoming Catalysts Plus Forward View

Fortune Business Insights expects the lens market to grow at an annual rate of 6% from 2022 to 2029. Bausch + Lomb works in the growing marketplace. I quoted a news item from Seeking Alpha:

B+L has advantages from name recognition and limited competition in many areas it functions. Miehm mentioned that the business will benefit from tailwinds including a good aging population, increasing time in front of screens, rise in diabetes worldwide, and higher rates of myopia, dry eye plus age-related macular degeneration.

To ensure growth for years in order to come, Bausch + Lomb has strong catalysts:

  1. Introducing Revive, the customizable soft lenses.
  2. Dry vision treatment introduction (NOV03): NDA submitted to FDA.
  3. Expansion of the surgical portfolio.
  4. Bausch + Lomb solid marketing capabilities characterized by Lumify increased market share.

1) Bausch + Lomb is expanding its current product profile with Restore . These are customizable soft contact lenses for a broad range associated with patients. The adjustable parameters are the particular lens diameter, base curve and power for optimal fit.

Revive customizable soft contact lenses - 2Q22 Investor Presentation

Revive easy to customize soft get in touch with lenses (2Q22 Investor Presentation)

Revive will help meet a wider range of patient needs. Patients who will benefit through Revive will most likely be patients with an unique prescription or physical feature such as unusual pupil size.

CooperVision’s BYO AB and BYO Premium are competitors of Revive. The closest competitor is usually BYO AB because the oxygen permeability matches that will of Restore. The drinking water content of Revive lens (49%) is definitely lower than that associated with BYO ABDOMINAL (58%), therefore for that customer it is a personal choice here. I don’t know if Revive lens are more affordable compared to BYO STOMACH, so Bausch + Lomb’s competitive advantage is still unknown. Revive adds another opportunity to a niche market.

2) Introduction of treatment intended for dry attention (NOV03). A picture paints a thousand words:

NOV03 - 2Q22 Investor Presentation

NOV03 (2Q22 Investor Presentation)

Quoted from the presentation:

“Dry eyesight disease is among the most common ocular surface disorders, along with approximately 18M Americans diagnosed with DED. ”

While Bausch + Health expects double-digit growth, Fortune Business Insights expects the particular dry eyes market to grow at the CAGR associated with 5% in order to $6. 54 billion by 2027. Nevertheless, the dried out eye market is a large and developing market plus Bausch + Lomb can be well positioned to generate income from it.

3) Expansion of the medical portfolio. Since nearly 80 million individuals worldwide had glaucoma within 2020, there is a large marketplace for Bausch to penetrate.

Expansion Of The Surgical Portfolio - 2Q22 Investor Presentation

Growth Of The particular Surgical Portfolio (2Q22 Buyer Presentation)

In glaucoma, the optic nerve is damaged, causing the visual field to gradually disappear. In most cases, the particular eye pressure is too high, but the eye pressure can also be normal. Usually the vision pressure is certainly lowered simply by means associated with eye drops.

If the eye pressure doesn’t get lower, laser treatment or surgery is performed. Only patients with advanced or even difficult-to-treat glaucoma undergo surgery. Bausch + Health will be clearly well positioned in a large market, but it is unclear how many patients are using this simple and fast glaucoma treatment.

4) Bausch + Lomb has targeted TikTok users to ” dance along with their eyes ” as a marketing stunt that has racked up nearly 14 million views in order to date. Users could win a makeover with Vincent Oquendo, Lumify increased its market share to 47%.

Market Share Growth Of The Lumify Franchise - 2Q22 Investor Relations

Market Share Growth Of The Lumify Franchise (2Q22 Investor Relations)

This is the perfect example of a good marketing stop. Management has done a great job within launching this particular well-targeted marketing campaign to increase market discuss. Possibly more marketing stunts will follow because this was a great success.

Valuation

The current valuation is usually compared with that of competitors. The Enterprise Value/EBITDA was chosen to determine the relative valuation. This ratio takes into account cash plus debt to reflect a fair and relative valuation. Bausch + Lomb’s rivals include Johnson & Manley, Alcon plus CooperVision.

Chart
BLCO EV in order to EBITDA data by YCharts

Johnson & Johnson is the conglomerate made up of divisions that go beyond vision care. Because J& J has a large market share in eye health, I include J& M in the EV/EBITDA chart.

Company

EV/EBITDA

10-yr average EV/EBITDA

Bausch + Lomb

10. 5

10. 8

J& L

15. 9

13. 7

Alcon

19. 5

26. 5

The particular Cooper Companies

21. 3

21. 0

Source: Author’s Own Calculations.

Compared to competition, Bausch + Lomb is definitely severely undervalued. Direct competitors such as Alcon and The Cooper Companies trade at twice the EV/EBITDA ratio. And J& J’s EV/EBITDA can be approximately 50% higher than B+L’s. With an EV/EBITDA of 16, Bausch + Lomb should be trading at a stock price of $26 (representing 64% upside potential)

Risks

Bausch + Lomb recently went public and offers been partially spun off from Bausch Health. As a result, there are usually quite a few risks regarding the Bausch + Lomb stock price trend. As SA contributor Mike Zaccardi wrote , Bausch + Lomb will soon be completely spun off from Bausch Health. Nearly 90% associated with the shares are still owned by Bausch Health.

Their Aug. 9 SEC filing (quarterly report) states the following:

… (including the Company’s expectation that the spinoff will be completed following the expiry of customary lock-ups related to the B+L IPO plus achievement of targeted debt leverage ratios, subject to receipt of applicable shareholder and other necessary approvals)…

The IPO lock-up expiration date has been set at September 7. After that period, early investors can sell their shares bought during the Bausch + Lomb IPO. Bausch Health plans to sell shares of Bausch + Lomb to reduce their massive debt burden.

The price of Bausch + Lomb is expected to fall as Bausch Health aggressively sells stocks. But for Bausch Health, it’s in their best interest to market the stock at a high price. The shares are sold gradually, which means that the downward pressure on the share price will be less. The following affects the particular period in which the shares are sold ( Q2 22 report ):

… the market or other conditions are no longer favorable to completing the spinoff … Norwich Legal Decision may affect the timing of, or our ability to complete the B+L Separation .

Norwich is trying to submit a generic version of Bausch Health’ Xifaxan. A recent article on SA showed that will Bausch Health was not winning on polymorphs plus IBS-related claims that would allow Norwich in order to launch the particular generic version of Xifaxan. This is very bad news with regard to Bausch Wellness as they would lose the large revenue stream in the midst of their financial debt crisis. The decision also affects the time frame to complete Bausch Health’s Bausch + Lomb IPO separation.

The recent Bausch Health article showed that the company is making progress toward separating Bausch + Lomb. Bausch Health has transferred 38. 6% associated with Bausch + Lomb common stock in order to an existing wholly owned subsidiary of the company without restrictions. A total of 50. 1% of Bausch + Lomb shares were still owned by the limited subsidiary; the company could therefore still consolidate Bausch + Lomb profits on their balance sheet. The transfer will certainly further enable the company to sell their own Bausch + Lomb gives.

To summarize, there may be more volatility within Bausch + Lomb shares after the BÖRSEGANG (ÖSTERR.) lock-up expires on Sept. 7. Bausch + Lomb has a positive long-term outlook, but short-term headwinds. The stock is a strong buy after the lock-up date.

Conclusion

Bausch + Lomb manufactures and distributes contact lenses, eye drops and ophthalmic medicines and has a portfolio of more than 400 products sold in nearly 100 countries. Soft lenses plus eye drops are a consumable product, consumables deliver a stable revenue stream. Many of Bausch’ soft lenses have the competitive advantage over competitors. Some are of the highest quality and others are designed for consumers on a budget. Consolidated sales are split into the Vision Care segment (63%), the Surgical section (20%) and the Ophthalmology portion (17%). The particular organic consolidated sales growth of 6% was primarily driven by strong development in Eyesight Care and strong growth in the particular Surgical segment.

The long-term outlook looks bright but there are immediate headwinds.

Strong catalysts:

  1. Introducing Revive, the customizable soft contact lenses.
  2. Dry eye treatment introduction (NOV03): NDA submitted to FDA.
  3. Expansion from the surgical portfolio.
  4. Bausch + Lomb strong marketing capabilities characterized simply by Lumify increased market share.

Risks:

  • Expiry day IPO lock-up (September 7). Bausch Health will gradually sell shares of Bausch + Lomb as the company seeks to reduce its debt.

The stock valuation will be favorable since the EV/EBITDA ratio is half that of closest rivals. Bausch Health will not sell BLCO stocks at an undervalued price. I would wait to see what September brings plus gradually load up gives in the months thereafter. The stock is then a solid buy with a fair price target associated with $26.

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