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Bears Set Sights on LCA-Vision

LCA-Vision (LCAV) gave investors a black eye on Oct. 2 after the provider of laser vision correction services slashed its earnings outlook. The company also announced that its president, Kevin Hassey, is resigning effective Oct. 6. Its stock plunged 25% to $30.81, a new 52-week low.

After the market close on Sept. 29, the Cincinnati-based company cut its 2006 earnings per share guidance to $1.60-$1.70, from $1.80-$1.90, and expects second-half revenue growth to be in the 25% to 30% range. Analysts had expected the company to earn $1.89 a share (excluding exceptional items) this year, according to Reuters Estimates and Thomson First Call.

LCA-Vision owns 56 LasikPlus laser vision correction centers in the U.S. On a conference call on Oct. 2, Chief Financial Officer Alan Buckley said performance in the third quarter has been softer than expected. Its $13 million marketing efforts failed to generate the expected number of appointments, according to the interim chief executive, Craig Joffe. The company says it plans to reallocate ad spending and tweak its message heading into the fourth quarter and full-year 2007 periods.

In a separate release about the resignation of its president, LCA-Vision says Hassey was a key member of the executive management team and a finalist for the chief executive officer position prior to his decision to leave the company. He joined the company in August 2003.

One analyst downgraded the stock on the news. Raymond James Analyst John Ransom cut his opinion on LCA-Vision to market perform from strong buy. Ransom says he suspects that soft refractive market growth, attributable in part to a weaker consumer environment, was the reason for lowered 2006 EPS guidance.

Also, Ransom notes that former president Hassey was a finalist for the CEO position. While an imminent naming of a permanent CEO would alleviate some of the recent overhang on stock, Ransom sees new near term uncertainty with Hassey's departure, as he had been instrumental to the company's direct-to-consumer marketing efforts, which was key to securing volume.

Ransom cut his 2006 and 2007 EPS estimates to $1.65 and $1.97, respectively.

LCA-Vision is not the only eye care company suffering some blurry spells. Last week, Advanced Medical Optics (EYE) cut its revenue outlook for this year because it is having trouble selling ophthalmic surgical devices (see, 9/26/06, "Street Takes a Dim View of Advanced Medical Optics"). Clearly, the eye business is not always easy to see and predict far ahead.

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