Analysts Finally Sniffing At Bausch And Lomb Again

By Dr. Duru written for One-Twenty

June 5, 2006


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Over three weeks after asking whether Basuch and Lomb (BOL) had finally been sold enough, I finally notice an analyst revising an opinion in the positive direction. While I managed to nail the exact bottom, and I even managed to get my missive in before a very encouraging article from the WSJ sent the stock lurching upward, I have to call that timing more coincidence than any kind of prescience. What I was noting is that negativity had suddenly seemed disproportionate with reality...and when enough market players recognize the same thing, they tend to move in quickly. The stock has managed a 20% gain from there, but was stuck going nowhere until Goldman stepped in on Friday and revised its neutral to an "in-line." BOL jumped another 4% in sympathy. What happened was typical. Goldman was one of many analysts who got negative on BOL after BOL took a 15% plunge on April 11 from more bad news regarding eye infections apparently caused from their contact-lens solution. This was after the stock has been trending down for about 10 months from roughly $85 to $57. Goldman is upgrading now that the stock has recovered back to the level at which they finally downgraded the stock.

Mind you, Goldman's report is not exactly the stuff of bullish optimism. AP reported (see "Bausch & Lomb Shares Rise on Upgrade", June 2, 2006): "Goldman Sachs analyst Lawrence Keusch said that a recent study conducted by the investment bank found that market-share erosion in the ReNu franchise is mainly in the U.S., with limited focus on the issue in Europe and Japan, and that damage caused by the investigation is largely reflected in the stock already. 'We see limited upside for Bausch & Lomb shares due to a lack of catalysts over the next several quarters," Keusch wrote in a note to clients. 'However, with our survey suggesting that market share declines appear to be largely reflected in shares, we believe that the risk/reward is now more balanced.'" The specific course of action is vague here, but I can only guess that what is really going on here is that the analyst is hedging his bets. The stock has recovered back to levels where he issued the downgrade, and he is likely trying to reverse that decision before the stock gains any more momentum. But this buy recommendation is weak enough so that he cannot be blamed too strongly if the stock proves to have more risk than reward again. I even suspect that his clients will be strong buyers if the stock ever came down again. If more and more analysts start switching from bears to some kind of bulls or "non-bears," you will know the best of this trading opportunity off despair over-done will be behind us. Remember, the analysts only managed to get you out of the stock after most of the bad news had come in. They will be very hesitant to dip the proverbial toe back in the water until all appears "safe" again. Kudos to Goldman for at least trying to get ahead of the "upside risk."

The last analyst to turn positive will probably be the one at Baird who reinforced his/her neutral rating on May 16th and then again on May 22nd with the following as reported by briefing.com:
"Robert Baird believes that despite positive CDC data on Friday further exonerating ReNu Multiplus, an IRS ruling disclosed after the close of the market on Friday could add to liquidity concerns impacting BOL. Given these liquidity concerns, ongoing accounting investigations, and the unknowns surrounding the ReNu franchise (not only how much collateral damage has been done to the ReNu franchise, but also how expensive brand rebuilding/potential litigation issues could prove), firm maintains their Neutral rating."

In the meantime, be careful out there...! After all, BOL is already 20% off the bottom and sitting right on the 50DMA after fading into the close of Friday's trading day on the upgrade!

DrDuru, 2006