EYE Shares Seen as a Hold

Advanced Medical Optics (EYE) announced reduced management guidance for 2008 due primarily to weaker-than-expected refractive procedures and system sales in the U.S. and Europe from declining economic conditions and weaker-than-expected eye care sales. We have lowered our FY08/FY09 estimates. The company is scheduled to report third-quarter results on October 31.

At its current price of $7.50 per share, AMO is trading at 8x our 2009 earnings estimate of $0.94 per share and roughly a 0.4x P/E/G on 2009 EPS estimate, at a discount to the peer group. Growth in 2008 is expected to be negatively impacted by an elective refractive procedure market that is weakening in the U.S and Europe due to declining economic conditions, by global system sales and by reduced expected growth in refractive intraocular lens sales.

Despite declining U.S. excimer procedures, the company expects to continue to outperform the market. Although being negatively impacted by an execution problem in Japan during the third quarter, it continues to find success in the recovery of the eye care business from the launch of Complete Easy Rub. The increasing profitability and strong cash generating ability of the cataract business is a source of stability. We believe the stock is appropriately valued around a 0.4x P/E/G on 2009 EPS estimate or roughly 9x our 2009 EPS estimate. Our price target moves to $8.

Read the full analyst report on EYE

Read the full analyst report on EYE