Advanced Medical's Black EYE

Advanced Medical Optics Inc.'s (EYE) growth in 2008 is expected to be hurt by the recall of the COMPLETE multi-purpose solution last year and an elective refractive procedure market that is weakening in the U.S due to the slowdown in the economy and reduced expected growth in the domestic refractive intraocular lenses sales.

In a declining market, Advanced Medical expects to continue to outperform the U.S. laser vision correction market with the support from multiple growth drivers. The continued success in the recovery of the eye care business from the launch of Complete Easy Rub provides additional support to the weaker growth.

The earnings growth is focused on being driven by revenue increases that outpace operating expense growth, an expanding gross margin from product mix changes to higher margin promoted products, and lower taxes from reduced rates due to the implementation of a long-term tax strategy.

The management plans to cut fixed costs primarily in manufacturing and selling, gross and administrative operations to provide some support to earnings growth and maximize cash flow in a weak economy.

At its current price of $18.76 per share, Advanced Medical is trading at roughly 15x our 2008 earnings estimate of $1.28 per share and roughly a 0.8x P/E/G on 2008 EPS estimate, at roughly a discount to the peer group P/E multiple of roughly 19x and at a discount to the group P/E/G of roughly 1.1x. We believe the stock is fairly valued around a 0.8x P/E/G or roughly 16x our 2008 EPS estimate. Our price target moves to $20.

Read the full analyst report on EYE