As Outlook for Vision Care Industry Changes, Bausch Poised to Benefit

After reviewing our key valuation assumptions, we are maintaining our $25 fair value estimate for Bausch & Lomb BLCO.

Vision care made up 63% of total sales in 2022, and we forecast mid-single-digit long-term growth for the segment. We believe macro drivers, including an aging population, an increasing prevalence of myopia (nearsightedness), and a favorable product mix will all act as tailwinds for the business. The industry has seen an increasing portion of lens wearers upgrade their lenses based on modality (reusable to daily), lens material (non-silicone hydrogel to silicone hydrogel), and lens type (spherical to multifocal or toric). Trade-ups come at higher price tags and higher margins, and we expect Bausch to enjoy these tailwinds.

Surgical made up 18% of total sales in 2022, and we forecast low-single-digit long-term growth for the segment. Some macro tailwinds that could spur segment growth include an aging population and an increased adoption of advanced technologies. After years of underinvestment in the business while Bausch was under its former parent company, we have seen a greater focus on innovating the segment after the spinoff. We expect Bausch to invest into its lineup of intraocular lenses to further compete with players like Alcon and Carl Zeiss Meditec.

Ophthalmic pharmaceuticals made up 19% of total sales in 2022, and we forecast low-single-digit growth for the segment, driven by an increasing myopia and diabetes prevalence as well as a growing access to vision care treatment. The segment faced pressures in 2022 as it faced some key losses of exclusivity, including Lotemax and Bepreve, and its operating margin dropped from 41% to 30%. While we expect key drugs in the pipeline—including NOV03 (for dry eye), which we expect to launch within the next three years—to offset some of these headwinds, we forecast a lower long-term margin going forward.