Zacks Small Cap Institutional Research



|Bausch & Lomb Inc. |(BOL-NYSE) |$68.08 |

Note to the Reader: All new or revised material since the last report is highlighted

Reason for Report: News Update Prev. Ed. June 28, 2007

Recent Events

On May 10, 2007, BOL announced its 1Q07 preliminary results. The highlights are:

• Total revenue was $578.9 million, up by 6% y/y.

• GAAP EPS was $0.35

On April 25, 2007, BOL filed its Annual Report on Form 10-K for the year ended December 31, 2006 with the United States Securities and Exchange Commission (SEC). The highlights for 2006 were:

• Total revenue was $2.29 billion versus $2.35 billion in 2005, down by 21% y/y.

• EPS was $0.27 versus $0.35 in 2005, down by 22% y/y.

The company expects to file 10-Q for 3Q05, 1Q06 and 2Q06 with SEC soon.

Overview

Investors in BOL should make an investment decision based on their assessment of the following pertinent issues:

|Key Positive Arguments |Key Negative Arguments |

|BOL is the market leader in the $1.7 billion global lens care market, which |BOL’s key business, contact lenses, is a highly competitive industry with |

|is a relatively mature market, increasing roughly 1%-3% annually. |significant competition from several well-established manufacturers. |

|BOL is a major player in silicone hydrogel lens market, which is growing |Declining Surgical volumes and irrational reductions in per-procedure fees by|

|fast due to the gradual transition from older hydrogel to silicone hydrogel |manufacturers remain a cause of concern to analysts. |

|lenses. |The permanent removal of BOL’s ReNu with MoistureLoc contact lens solution |

|The company is shifting its attention from the Retisert program to key |due to incidences of fungal infection from the global markets has damaged the|

|business lines such as contact lenses, lens care, and refractive and |brand image of BOL. |

|cataract surgery. | |

|The acquisition of Shandong Chia Tai Freda Pharmaceutical Group perfectly | |

|complements BOL’s already strong surgical and vision-care presence in China.| |

|Opportunities for growth in Japan - BOL’s second-largest international | |

|market - remain robust. | |

|The 2006 10-K filing removes the company’s financial and regulatory | |

|concerns. | |

Bausch & Lomb Inc. (BOL) is one of the world’s leading eye care manufacturers and providers of eye care solutions. BOL manufactures contact lenses, contact lens care solutions, and pharmaceutical products for eye health. It also manufactures equipment used for refractive and cataract procedures. BOL has been in business for over 150 years. Based in Rochester, New York, the company conducts business throughout the world. BOL has approximately 13,000 employees worldwide.

On July 6, 2007, BOL announced it has received an offer from Advanced Medical Optics (EYE) to purchase 100% of BOL’s outstanding shares for $75 ($45 cash/$30 stock) per share. The proposal values B&L at approximately $4.3 billion in equity value. In May 2007, BOL had announced that it has agreed to be acquired by Warburg Pincus (WP) for $65 per share or a total consideration of $4.5 billion (including $830 million of debt). WP has received US antitrust approval to acquire BOL. BOL has filed a preliminary proxy statement for a shareholder meeting to vote on the pending merger agreement with WP, which received FTC clearance on July 9. However, BOL continues to evaluate EYE’s offer, which was deemed to be bona fide and reasonably likely to result in a superior proposal as defined in the WP merger agreement.

Additional information is available online at .

NOTE: The company’s fiscal references coincide with the calendar year.

Revenue

BOL reported 1Q07 preliminary revenue of $578.9 million. Excluding a $19.1 million provision in 1Q06 for customer returns related to the Moisture Loc recall, 1Q07 sales are expected to have increased 2% on a reported basis.

U.S. preliminary revenue in 1Q07 was $242.1 million versus $247.5 million in 1Q06, a decline of 2% y/y. European revenue reported by the company was $230.1 million in 1Q07 versus $186.3 million in 1Q06, an increase of 24% y/y. Asian revenue reported by the company was $106.7 million in 1Q07 versus $112.2 million in 1Q06, a decline of 5% y/y. BOL reiterated its previously provided 2007 revenue guidance in the range of $2,500 million-$2,625 million.

In the 10-K filing, BOL reported consolidated revenue which decreased 21% y/y to $2.29 billion in FY06 versus $2.35 billion in FY05. The decrease in revenue was due to decline in lens care products.

|($ in million) |

|Positive |0% |

|Neutral |63% |

|Negative |38% |

|Avg. Target Price |$64.25 |

The average Zacks Digest price target of the brokerage firms providing such a number is $64.25 (5.6% down from the current price). The price targets range from $51 (Zacks Investment Research) to $77.50 (Wachovia). The brokerage firm with the highest target price has assigned a neutral rating on the stock, and the brokerage firm with the lowest price target has assigned negative rating to the stock.

Eight brokerage firms have assigned ratings to the stock. Of them, five firms gave neutral ratings on the stock and three firms gave negative ratings on the stock. It is to be noted that none of the brokerage firms has assigned a positive rating on the stock.

For more details on Valuation, please refer to the Zacks Research Digest spreadsheet on BOL.

Capital Structure/Solvency/Cash Flow/Governance/Other

On July 11, 2007, BOL announced the FDA has completed an inspection of the company's Greenville, S.C. solutions manufacturing plant and distribution center. The results of that inspection confirmed Bausch & Lomb's conviction that both facilities are in acceptable compliance. The assessment of the facility was a follow-up to the agency's inspection conducted during the period March 22 through May 15, 2006

As per the Zacks Digest, BOL generated cash of $118.5 million from operating activities in FY06 versus $240.3 million in 2005. The company indicated that FY06 cash flow from operating activities has been negatively impacted by the outflows associated with the MoistureLoc recall, as well as the cost of the investigations and brand rebuilding expenditures. BOL reiterated that capital expenditures effectively offset FY06 operating cash flows, owing to costs associated with the installation of manufacturing equipment for PureVision contact lenses and expanding BOL's main R&D facility in Rochester. Cash and cash equivalent as per the Zacks Digest was $499.9 million at the end of FY06 versus $720.7 million at the end of FY05.

On January 15, 2007, BOL announced that it has made an equity investment in, and secured an exclusive option to purchase AcuFocus, Inc., a privately held company located in Irvine, California that is developing corneal inlay technology for the treatment of presbyopia. Terms of the agreement were not disclosed.

Potentially Severe Problems

There are none other than those discussed in other sections of this report.

Long-Term Growth

Three brokerage firms covering the company have published a three-to-five year EPS growth rate. The average long-term growth rate is 9%. The low-end projection is 6% (FTN Midwest Res.) and the high-end projection is 11% (Bear Stearns).

The company’s core Vision Care franchise is considered to be its primary growth driver in the coming years. In contact lenses, margin expansion is expected to be driven by increasing sales and manufacturing efficiencies with the company’s silicone hydrogel PureVision lens line. Brokerage firms expect the silicone hydrogel lens market to grow and easily represent over 50% of the contact lens market in the long term as the transition from older hydrogel to silicone hydrogel lenses is progressing fast. While lens care growth is not expected to exceed the low single-digit range, this would still allow BOL to capture share in a flattish worldwide lens care market.

In Pharma, near-term growth opportunities are expected to come from the ocular nutritional and OTC side of BOL's business. The company, which derives nearly 50% of pharmaceuticals sales from its OTC and nutritional businesses, plans to switch its focus from OTC/generics markets to proprietary branded pharmaceuticals over the next several years. The purchase of Alimera’s Sciences OTC allergy franchise is another step in this direction. It enhances BOL’s current OTC product portfolio and provides the company with an excellent technology platform for the development of product line extensions in the ocular allergy category.

Finally, in cataract, growth over the next several years is expected to result from increasing penetration of BOL's SofPort AO aspheric silicone IOL in the US and the Akreos AO acrylic IOL outside the United States.

BOL continues to focus on acquisitions and product licensures to boost near-term sales growth and to generate long-term pipeline candidates. It is believed that although a large acquisition is not out of question, BOL is focused on deals, which will be neutral to accretive within two years.

Upcoming Events

2007: Expected launch of SH lens with advanced surface technology.

Late 2007 / early 2008: New silicone contact lens material launch expected.

Individual Analyst Opinions

POSITIVE RATINGS

None.

NEUTRAL RATINGS

BMO Capital – Market Perform (Price Target $52) (Report date: May 11, 2007): The firm has reiterated its rating and target price on the stock. INVESTMENT SUMMARY: The firm believes that BOL remains challenged, with lingering issues associated with its recalls and financial reporting processes.

Bear Stearns – Peer Perform (No Price Target) (Report date: July 6, 2007): The firm has reiterated its rating on the stock. INVESTMENT SUMMARY: The firm believes that the BOL story will show signs of operational improvement in 2007, particularly with the new product launches and brand equity re-building efforts.

Goldman – (Report date: July 10, 2007): The firm has reiterated its rating and target price on the stock.

R W. Baird – Neutral (Price Target $75) (Report date: July 6, 2007): The firm has reiterated its rating on the stock, but increased the target price from $65 to $75. With EYE offering $75 per share in a cash and stock deal to acquire BOL, the firm believes shares of BOL are likely to move close to this level near term. As such, the firm has increased the target price.

Wachovia – Market Perform (Price Target $77.50) (Report date: July 10, 2007): The firm has initiated coverage on the stock with a Market Perform rating. The firm believes the upside potential for BOL stock is limited over the next three months, based on a combination of (1) current valuation, and (2) the uncertainty surrounding the competing bids for the company.

NEGATIVE RATINGS

Zacks Investment Research – Sell (Price Target $51) (Report date: May 11, 2007): The firm has downgraded its rating from Hold to Sell and increased the target price from $47 to $51.

FTN Midwest Res. – Sell (Price Target $65) (Report date: May 17, 2007): The firm has reiterated its rating on the stock but increased the target price from $44 to $65. INVESTMENT SUMMARY: The firm raised its target price in-line with Warburg Pincus LLC’s $65 per share bid.

J.P. Morgan – Underweight (No Price Target) (Report date: May 11, 2007): The firm has reiterated its rating on the stock. INVESTMENT SUMMARY: While the firm expects BOL to resolve its problems, it believes results in the near term will continue to suffer as the company tries to restore its corporate image. As such it maintains a negative stance on BOL.

Research Analyst: Kinjel Shah

Copy Editor: Oindrila Banerjee

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July 13, 2007

Research Analyst: Kinjel Shah, C.A.

Sr. Ed: Ian Madsen, CFA; imadsen@; 1-800-767-3771, x9417

111 N. Canal Street, Suite 1101 [pic] Chicago, IL 60606

Zacks Research Digest

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