LCA-Vision, Inc. (LCAV)
(November 18, 2004)
Dear readers, the market remains short-term overbought but over the longer-run, this author believes that long positions will ultimately work out. As I mentioned in my latest weekly commentary, liquidity and the change in psychology of retail investors will overwhelm all else. For now, our DJIA Timing System remains flat and is still waiting for a good opportunity to get back into the long side. Readers please stayed tuned.
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Another company in the medical supply/health services industry, LCA-Vision has performed over 300,000 laser vision correction procedures in its centers since 1991. The company currently operates 44 laser vision correction centers, including 40 wholly owned LasikPlus vision centers in the U.S., three joint ventures in Canada and one joint venture in Europe. In its latest 3Q earnings report, the company reported a jump in procedures done to 23,248, up from 15,965 procedures done for the same quarter in 2003. Revenues per procedure have also remained steady – actually increasing from $1,281 to $1,342 on a year-over-year basis. Operating margin, meanwhile, jumped from 7.2% to 17.7%.
More highlights: Same-store sales increased 38%, while the company is scheduled to open 10 to 12 more vision centers during calendar year 2005.
The company also recently increased 2004 guidance and reaffirmed 2005 estimates. The following guidance was taken straight from the latest earnings report released on October 26th:
Based upon third quarter financial results and management's outlook for the remainder of the year, LCA-Vision increased full-year 2004 revenues and earnings guidance as follows:
- Revenues in the range of $124 million to $125 million, up from prior guidance of $121 million to $123 million.
- Earnings per diluted share in the range of $2.12 to $2.17, up from prior guidance of $2.05 to $2.15. Both the new and previous guidance include a $0.76 per diluted share benefit recorded in the first half of 2004 for the reversal of the deferred tax valuation allowance and also reflect a presumed 41% tax rate for the fourth quarter of 2004.
For 2005, LCA-Vision reaffirmed expectations for revenues to increase 30-40% and income before taxes to increase 40-50%, resulting in diluted EPS of $1.45 to $1.55 for 2005. If the Company had recorded an effective tax rate of 41% for all of 2004, we project fully diluted EPS for 2004 to be $1.01 to $1.06. Management feels that this proforma calculation for 2004 is a meaningful disclosure as it facilitates investors comparing 2004 and 2005 projected results on a consistent basis.
This author believes that the market for laser vision correction procedures is only in its beginning stages, as most of the public still remains shy and largely uneducated about these procedures. So far, results from these procedures have largely remained favorable, and the technology for these procedures will only continue to get better going forward (back in March of last year, the company upgraded its technology in all its centers to what is called “custom Lasik” – a highly customizable approach which gives the patient a better chance of getting 20/20 vision). In a recent MarketWatch.com article featuring LCAV, it was stated that “the laser vision correction market is still largely untapped, with only 4 million of the 57 million Americans eligible for laser vision correction having undergone the procedure” and “that this market will grow by 17 percent this year and 10 to 15 percent in 2005.”
Technically, the stock also looks good (although it is somewhat overextended) as it again rose to a new all-time high yesterday on 150% of its average daily trading volume. The company also announced a 3-for-2 stock split and increased its quarterly dividend payouts:
On a short-term basis, LCAV is definitely overextended. Similar to my recommendation for last week’s pick ASPM, astute traders may want to wait for a slight pullback before buying.
Henry To, CFA
P.S. Please discuss this stock in our individual stocks discussion forum.