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Ocular: The Apple of a Rival's Eye?

In contact lenses, Ocular Sciences (OCLR) is tops, says analyst Suey Wong of investment firm Robert W. Baird. Not only are its sales growing fastest--at three times the industry's average global pace--but Ocular is also "a very attractive takeover target," says Wong, who rates the stock a strong buy. He doesn't own shares, nor does his company do banking for Ocular. Spurred by its new products and experienced sales force, Ocular is No. 4 in lens sales: Only Johnson & Johnson, Ciba Vision, and Bausch & Lomb are larger. But in the $2 billion-a-year market for standard disposable lenses, Ocular is second only to J&J. Ocular also makes soft disposables.

Based on recent industry deals, Ocular, now trading at 25, is worth three times its sales of $254 million, or 35 a share, figures Wong. He thinks Bausch & Lomb is the most likely suitor. He recalls that Bausch lost out to Ciba in its bid in 2000 for Wesley Jessen, another lens maker. So Wong expects Bausch to go after Ocular, to better compete with J&J and Ciba.

On fundamentals, Ocular is already worth 33, says Wong, based on 16.5 times his 2003 estimate of $2 a share. He expects earnings of $1.72 this year. Analyst Marc Goodman of Morgan Stanley, which led Ocular's underwriting of share offerings in 1998 and 1997, sees Europe as the next growth area for Ocular, where it has a 10% share of the $600 million contact-lens market, vs. 20% in the U.S. A Bausch and Lomb spokeswoman wouldn't comment on its acquisition plans. Ocular CEO Stephen Fanning says "our goal is to continue the company's rapid growth." By Gene G. Marcial

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