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Advanced Medical Optics (EYE) Purchase Might Create an Abbott (ABT) Buying Opportunity

Jan 12 2009

Advanced Medical Optics (EYE) Purchase Might Create an Abbott (ABT) Buying Opportunity

Reports came out this morning that Abbott Laboratories was purchasing Advanced Medical Optics for $2.8 Billion or $22 a share in cash and assumed debt. Advanced Medical Optics is a California based eye-care device maker with revenues of $1.2 Billion a year and earnings per share of 38 cents. Best known for it's Laser Eye technologies, the company's stock price has declined near 56% over the past 52 week. The purchase price represents more than a doubling of the previous trading day's price.

Paid Too Much?

Overpaying for a poor performer that is overpriced even after a significant price drop does not look like a good business move but Abbott saw something in the device maker that made them offer the premium. Abbott fell on the news today 1.3% on a day with weakness across the board in the markets. The stock has been trending down over the past 3 months but fundamentally looks solid.

Fundamentals

Analysts recently have been looking for better earnings from the company on decent revenue increases. For the current quarter they are now looking for $1.06 per share when they report next vs. analyst's estimates of $1.04 a share three months ago. This is an Earnings increase of 14% compared to the same quarter last year. Revenue continues to climb with year over year growth for 2008 to be 14.2%.

The Trade

With the price/earnings ratio for the company at 13.8 the stock appears to be priced correctly but could see additional weakness with the purchase of Advanced Medical Optics which would create a buying opportunity.

 

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