...and A New View on Vision

07/29/2005 12:00 am EST

Focus:

Nancy Zambell

Editor, Wall Street's Best Investments and Wall Street's Best Dividend Stocks

"Being a big 'fraidy cat, I put off having laser eye surgery," notes Nancy Zambell. "But I took the plunge in 2003. It is absolutely the best thing I've ever done for myself. So I am a big believer." In her latest UnTapped Opportunities, she looks at a top play in this growing market.

"TLC Vision (TLCV NASDAQ) is the largest provider of refractive eye care in North America, with 73 laser eye centers in the US providing laser surgery to correct myopia (nearsightedness), hyperopia (farsightedness), and astigmatism. The firm performed 58,700 total paid laser procedures last year, with same store sales growing at a 9% clip. That's juicy growth in this economy, especially since these procedures are elective. In fact, vision correction surgery is the most widely performed elective operation in the world. In the US alone, it is estimated that the market is 55 million people, or 110 million procedures, and just 7% of that market has been penetrated, offering a fabulous growth opportunity.

"TLC has its foot firmly in the door in the cataract surgery arena, also, with 21% of its revenues coming from this segment. Right now, TLC is performing some 43,700 procedures annually, through 371 locations in 40 states. The company partners with small-town hospitals and doctors, using fixed or mobile sites (54 of those). Face it, if we live long enough, we will all need this done. And since for the next 20 years, the baby boomers will be fast approaching that 'cataract' age, I expect to see fabulous growth in this area. Top that expansion off with some much-needed stabilization in Medicare reimbursement rates, and you have a formula for success.

"Meanwhile, some 6% of TLC's revenues now come the treatment of AMD, dry age-related macular degeneration. AMD is the primary cause of legal blindness for folks age 50 and above. It essentially causes the loss of your central vision, making important tasks like driving impossible. There is no treatment available right now. But TLC is working on a patented treatment for filtering blood that improves micro-vascular circulation, through its 51% ownership of OccuLogix. It has completed Phase III trials and is expecting the results late this year or early 2006. This market is estimated to be a $1 billion opportunity, and TLC is poised to benefit when it takes off.

"The company is quickly becoming the 'go-to' partner for the eye-care industry. In addition to offering surgery in fixed and mobile environments, TLC is rapidly building its expertise in several other areas. First, it has a 51% ownership position in Vision Source, a firm that provides franchise opportunities to independent optometrists. Right now, there are 1,241 optometrists in 49 states, operating under the franchise umbrella, with tremendous potential for growth for the company. And the company has developed proprietary management and administration software and systems to help eye-care professionals grow their businesses, which have caught on quickly with doctors treating their patients at TLC's centers.

"And the icing on the cake for future profit opportunities: TLC recently merged with Laser Vision Centers, an affiliated network of more than 12,500 optometrists and 1,000 ophthalmologic surgeons. In addition to their vast network, the company fits right in with TLC's newest endeavors in doctor support. Laser Vision provides marketing advice, equipment maintenance, training, clinical advisory support, patient financing, partnership opportunities, and practice satelliting- all big growth areas.

"TLC posted record first quarter numbers and is in stellar financial shape. The firm completed its fifth consecutive quarter of record year-over-year earnings, in its quarter ended March 31. The company's revenues were up 9%, to $71 million and its net income climbed 19%, to $9.6 million. TLC's earnings per share were $0.13, compared to $0.12 last year. Refractive revenues grew by 11% in its corporate-owned centers. With excellent cash flow, very low debt, and trading at a p/e of just 13.5, the company is ripe for the picking. Trading near its 52-week low, this undervalued stock is poised for appreciation. Buy at a price no greater than $10 per share. And I suggest that you keep in mind a stop-loss of 20% less than your purchase price."

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