Dry Eye Treatments And Aging Demographics Will Drive Powerful Long Term Eye Care Expansion

Catalysts

About Bausch + Lomb

Bausch + Lomb is a global eye health company focused on vision care, pharmaceuticals and surgical products that help improve and protect patients' sight.

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

• Rapid expansion of the dry eye treatment category, with leadership positions in both Miebo and Xiidra and supported by rising disease awareness and combination therapy use, is poised to drive sustained double digit prescription growth and higher pharma revenue and earnings power.
• Breakthrough innovation in contact lenses, including the first of its kind bioactive lens and an expanded SiHy platform with daily disposable, frequent replacement and myopia control offerings, positions the company to keep outgrowing a mid single digit market and lift Vision Care revenue and mix accretive margins.
• Aging populations globally and increasing procedure volumes in cataract and premium IOLs, combined with a faster than expected recovery of the enVista and Envy platforms and continued LuxSmart rollout in Europe, should support durable high margin Surgical growth and margin expansion.
• An upgraded consumer eye health portfolio, with new formulations of LUMIFY, PreserVision and Blink Triple Care and revitalized global brands such as Blink and Artelac, is enabling the company to capture broader consumer segments and drive higher, more recurring over the counter revenue and improved gross margins.
• A loaded late stage pipeline of non aspirational programs, including next generation lifitegrast, a first in class ocular surface pain therapy and a glaucoma drug that improves visual acuity, underpinned by increased R&D investment and Vision 27 driven cost discipline, supports a multi year acceleration in revenue growth, EBITDA margin expansion and cash generation.

Assumptions

This narrative explores a more optimistic perspective on Bausch + Lomb 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 Bausch + Lomb's revenue will grow by 6.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -6.1% today to 4.0% in 3 years time.
• The bullish analysts expect earnings to reach $242.7 million (and earnings per share of $0.66) by about December 2028, up from $-305.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $133.9 million.
• 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 40.2x on those 2028 earnings, up from -19.7x today. This future PE is greater than the current PE for the US Medical Equipment industry at 28.9x.
• The bullish analysts expect the number of shares outstanding to grow by 0.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.9%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Dry eye and broader ophthalmic markets may not expand as rapidly as management anticipates, particularly if disease awareness, diagnosis rates or willingness to pay for newer therapies plateau. This would cap prescription volumes and slow revenue growth and earnings expansion.
• Rising competition and pricing pressure in dry eye, contact lenses and premium IOLs, including new entrants like TRYPTYR, cheaper private label lenses and aggressive peers in surgical implants, could erode Bausch + Lomb's share and force higher rebates and discounts. This would weigh on net revenue and gross margins.
• The Vision 27 financial excellence program and extensive cost initiatives touch hundreds of projects and nearly all 13,000 employees. This creates execution and organizational risk that savings fail to materialize or unintentionally disrupt sales and R&D productivity, which would limit margin expansion and cash flow improvement.
• Global macro and policy headwinds, such as ongoing tariff volatility with China, consumer softness in key geographies like Southeast Asia and China and pressure on lower income consumers, could weaken demand for higher margin products and raise input costs. This would compress gross margins and constrain free cash flow.

Valuation

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

• The assumed bullish price target for Bausch + Lomb is $21.0, which represents up to two standard deviations above the consensus price target of $17.1. This valuation is based on what can be assumed as the expectations of Bausch + Lomb'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 $21.0, and the most bearish reporting a price target of just $13.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $6.0 billion, earnings will come to $242.7 million, and it would be trading on a PE ratio of 40.2x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of $16.96, the analyst price target of $21.0 is 19.2% higher.
  
• 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.