Premium Cataract Adoption And International Expansion Will Drive Strong Long Term Potential

Catalysts

About RxSight

RxSight develops and commercializes the Light Adjustable Lens system to deliver personalized cataract surgery outcomes through postoperative adjustability.

What are the underlying business or industry changes driving this perspective?

• Growing clinical and market recognition of the Light Adjustable Lens as a differentiated premium intraocular option, reinforced by strong KOL engagement and conference visibility, supports sustained procedure growth and higher recurring LAL revenue.
• Deliberate international expansion into large premium cataract markets in Europe and Asia, now led by a dedicated EVP of International, is intended to steadily increase global procedure volumes and diversify revenue sources over the next several years.
• An ongoing shift by ophthalmology practices toward premium IOL offerings in response to declining Medicare cataract reimbursement encourages greater adoption of LAL to enhance practice economics, which can increase revenue per procedure and support earnings leverage.
• Commercial realignment, including integrated clinical and sales teams plus practice development programs such as MasterClass and Elevate, is designed to deepen utilization in the 1,100 unit installed LDD base, which may translate into faster LAL volume growth with limited incremental SG&A.
• A consistently rising LAL mix within total revenue and lower unit costs for both LAL and LDD support structurally higher gross margins in the high 70 percent range, improving the path toward operating leverage and expanding net margins as volumes scale.

Assumptions

This narrative explores a more optimistic perspective on RxSight compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming RxSight's revenue will grow by 4.3% annually over the next 3 years.
• The bullish analysts are not forecasting that RxSight will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate RxSight's profit margin will increase from -25.1% to the average US Medical Equipment industry of 12.9% in 3 years.
• If RxSight's profit margin were to converge on the industry average, you could expect earnings to reach $20.8 million (and earnings per share of $0.48) by about December 2028, up from $-35.7 million today.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 34.5x on those 2028 earnings, up from -14.5x today. This future PE is greater than the current PE for the US Medical Equipment industry at 30.4x.
• The bullish analysts expect the number of shares outstanding to grow by 1.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.71%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company is deliberately shifting away from capital LDD placements toward driving higher LAL utilization on an already built installed base. If this transition fails to deliver sustained procedure growth, the current decline in total revenue, which is guided to fall between 7 percent and 11 percent year over year, could persist and pressure both revenue and earnings.
• LALs have risen to 85 percent of sales and management expects gross margins to remain in the high 70 percent range. Any competitive pressure from new premium IOL entrants or slower than expected adoption of postoperative adjustability could erode pricing power and mix, leading to lower revenue and compressing net margins.
• Operating expenses are guided to increase 7 percent to 14 percent over 2024, with stock based compensation alone expected to reach 30 million to 32 million dollars. If LAL procedure growth does not ramp fast enough to offset this structurally higher cost base, the widening GAAP net loss could continue and delay any path to positive earnings.
• International expansion into Europe and Asia is still in the early innings and requires regulatory work, hiring and commercial investment. If uptake outside the U.S. is slower than anticipated or premium cataract demand is weaker than expected, the strategy could dilute returns and weigh on long term revenue growth and net margins.
• Medicare cataract reimbursement is set to decline a further 11 percent in 2026 after decades of real term cuts. Although this is expected to push practices toward premium IOLs, there is a long term risk that economic pressure on clinics and patients, especially in weaker macro environments, constrains overall cataract procedure volumes or premium mix, which would negatively affect revenue and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for RxSight is $13.35, which represents up to two standard deviations above the consensus price target of $9.89. This valuation is based on what can be assumed as the expectations of RxSight's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $14.0, and the most bearish reporting a price target of just $8.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $161.1 million, earnings will come to $20.8 million, and it would be trading on a PE ratio of 34.5x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of $12.62, the analyst price target of $13.35 is 5.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.