Shares of Santa Ana-based Advanced Medical Optics Inc. jumped Friday after an analyst said that the stock is a bargain, even though the company faces serious challenges.
The eye care product and surgical device maker’s shares were up 7% Friday with a market value of $1.4 billion.
Peter Bye of Jefferies & Co. upgraded Advanced Medical to “buy” from “hold.”
Advanced Medical makes eye surgery devices, including for laser vision correction, and contact lens solutions.
In a note to clients, he said Advanced Medical’s cash flow would increase in 2008, and new products should help steady the business.
“Despite ongoing concerns regarding guidance and a deteriorating consumer environment, we believe Advanced Medical Optics shares are not longer trading on any particular earnings forecast and are oversold at current levels,” Bye said in a note to clients. “The recent pullback offers an attractive entry point, in our view.”
Bye’s note also mentioned that the stock price includes risks that the company would lower its annual profit forecast, and the possibility that laser vision correction procedures could go down due to declining consumer spending.
Advanced Medical’s shares have lost half their value since late May, when it voluntarily recalled its Complete MoisturePlus contact lens solution after it was linked to an infection that could cause eye damage or blindness.
The company relaunched Complete since then with a new formulation that emphasizes rubbing lenses clean, instead of just soaking.
Although Bye upgraded Advanced Medical’s stock, he lowered his 2008 profit forecast to $72.6 million from $81.7 million. Overall, Wall Street expects Advanced Medical to earn $87.1 million on sales of $1.2 billion in 2008.
