Eye care product companies including Alcon Inc. and Allergan Inc. will likely see continued growth driven by an aging population, innovative technology and expansion into the booming Chinese and Indian markets, according to Citi Investment Research.
Analyst Amit Bhalla, in a note to investors in which he took over coverage of the opthalmology sector, said each of those factors will likely translate into short-term and long-term growth for the companies, which provide a range of products from contact lens solution to laser vision correction. The market itself is worth about $21 billion, he added.
"The outperformance of the ophthalmology sector compared to the overall market is largely the result of robust market fundamentals that support long-term growth for the more diversified players in the space," Bhalla said. "These favorable trends are still at play," he said.
Alcon, Allergan, and Cooper Cos. are all being bolstered by limited patent expirations, light generic competition and the potential for deals and buyouts, he said. Over the last year, key eye care companies have outperformed the broader market by 8 percent, he said, comparing it with a 7 percent slide in the Standard & Poor's 500 index.
Meanwhile, the contact lens care market has stabilized after recalls spanning the last two years.
The sector continues to trade at a premium compared with other health care sectors, he added.
He reaffirmed Citi's prior "Buy" rating on Switzerland-based Alcon, citing the ongoing purchase by Novartis of shares held by fellow Swiss company Nestle for about $39 billion. Alcon's products range from allergy treatments to glaucoma treatments.
Meanwhile, Irvine, Calif.-based Allergan's strong point is its diversity, as it makes glaucoma therapy products, along with medical devices to treat obesity and the wrinkle treatment Botox.
Pleasanton, Calif.-based Cooper is an emerging company, given its success with product growth and new product launches, he said. In March, the company raised its 2008 profit outlook, citing strong sales of contact lens and lens-related products.
Bhalla reaffirmed "Buy" ratings for both Allergan and Cooper. He reaffirmed a "Hold" rating on Santa Ana, Calif.-based Advanced Medical Optics Inc. and expects the company's growth to stall in 2008 because of lackluster sales in several key markets.
Still, most companies will reap rewards from the confluence of positive factors, as an aging population feeds demand, along with consumer needs for better eye care treatments earlier in life.
"We expect ongoing innovation to drive significant growth in the segment in particular for products that produce superior results, reduce complications or shorten surgical time," he said.
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