Bausch + Lomb Corp.

Bausch & Lomb delivered $1.4 billion in revenue, which is 2% higher than FactSet consensus and 9% year-over-year growth, and $0.17 in adjusted EPS, which is 3% lower than consensus. Shares are flat on results.

Why it matters: Implantables, up 64%, and Miebo, up 44%, were the standout performers during the quarter, which was good to see since Bausch has focused on growing these two specific areas over last few years. Vision care was up 4%. Last year's enVista recall artificially benefits this quarter's year-over-year intraocular lens comparison, but we think the growth still would have been well above the typical high-single-digit percentage excluding this impact. We think the investment in both salesforce and product development, especially on the premium lens side, is starting to pay dividends. Margin progression is also impressive—adjusted EBITDA margin came in at 17.6% for the quarter, up 260 basis points year over year. Margin typically improves throughout the year, a trend we expect to continue for the year, and this quarter's margin is already ahead of 2025's full-year level. We expect the strong readout to continue in the second half of 2026.

The bottom line: Our $18.50/CAD 25.50 fair value estimates for narrow-moat Bausch remain unchanged. Outlook for revenue and adjusted EBITDA was raised a low-single-digit percentage, which we incorporate in our model, but the change was immaterial to our valuation. We continue to see shares moderately attractive with about a 10% upside. All in, we see July 29's readout as a continuation of the progress Bausch has made over the past couple of years. Our valuation suggests 10.3 times EV/2026 adjusted EBITDA. Revenue growth of 9% in the first half of the year is already tracking ahead of the 5%-7% midterm target laid out during last year's investor day, giving us a higher level of confidence in the firm's long-term outlook. Our sales growth assumption through 2028 sits about 50 basis points higher than target midpoint.

Following the results of the second fiscal quarter of 2026, our $18.50/CAD 25.50 fair value estimate for narrow-moat Bausch remains unchanged. Outlook for revenue and EBITDA margin was raised a low-single-digit percentage, which we incorporated to our model, but the change was immaterial to our valuation.

Over the long term, we forecast mid-single-digit growth for vision care. We believe macro drivers, including an aging population, an increasing prevalence of myopia, and a favorable product mix, should provide solid tailwinds. Because roughly three quarters of contact lens wearers are aged 25 and older, an aging population helps expand Bausch’s end markets. Studies have suggested that roughly 30%-40% of the population is myopic today, but this number is expected to rise to 50% by 2050, and we expect the contact lens market to grow accordingly. We also believe a trend to a more favorable product mix will fuel the company’s margin expansion. The industry has seen an increasing portion of contact wearers upgrade their lenses based on modality, lens material, and lens type. Fifteen years ago, daily lens sales made up about 12% of the overall lens market, but they now make up more than half. We also see wearers upgrading their lenses from non-silicone hydrogel to silicone hydrogel, or SiHy. SiHy lenses made up roughly 45% of all contact lenses 15 years ago, but that number has jumped to roughly 60% today, and we expect it to continue to rise. Advancements in specialty lenses and a growing adoption of toric and multifocal lenses will benefit Bausch, as they have a material pricing premium over spherical lenses. We believe a combination of these factors can bolster Bausch’s sales and operating margin.

Outside of contact lenses, we believe Bausch is well positioned to enjoy a low- to mid-single-digit sales growth for lens solutions and over-the-counter eye care and supplements. With products like Lumify and PreserVision, Bausch is a market leader in many spaces it serves. We expect the company to maintain its dominance over the next five years because of patents, product superiority, and customer preferences.

Surgical makes up about 20% of Bausch's total sales, and we forecast low-single-digit long-term growth for the segment. After years of underinvestment in the business while Bausch was under its former parent company, we have seen a greater focus on innovating the segment after the spinoff. Bausch has a number of intraocular lenses, or IOLs, including enVista and Akeros, but it has consistently lagged behind Alcon and Johnson & Johnson, two of its close competitors in the space. And we see Bausch’s presence in the space under more pressure as its two competitors both offer a number of advanced-technology IOLs, or ATIOLs, an area where Bausch lacks advanced products. While we don’t see this as a significant threat over the short term because most ATIOLs, unlike monofocal IOLs, are not covered by insurance, we have seen a greater adoption of ATIOLs during cataract surgeries over the years. And if Bausch continues lagging behind its competition, we can see a scenario where it starts to lose its foothold in the IOL space. Besides IOLs, Bausch also manufactures ophthalmic surgical equipment as well as surgical instruments. The lifecycle for surgical equipment is around 10 years, and Bausch launched its phacoemulsification machine, Stellaris Elite, in 2017, so we expect a new machine within the next few years.

For ophthalmic pharmaceuticals, we model mild year-on-year growth for the segment thanks to continued prescription growth in both Xiidra and Miebo. We think the firm should continue to reap fruits of its marketing campaigns for both drugs and expect nice margin benefits over the midterm.

We assign Bausch & Lomb a narrow moat because we believe the firm's strong brand recognition and technically advanced products (intangibles), and patients’ unlikeness to move to a different product (switching costs) should drive economic profits for at least the next 10 years.

The US contact lens market is controlled by four players. Johnson & Johnson makes up over one-third of the market, Alcon and Cooper both control roughly 25% each, and Bausch controls 10%. Bausch introduced the first contact lenses to the US in 1971, and it has continued investing ever since to launch more innovative products by dedicating roughly 8% of its sales on research and development year over year. In our opinion, it takes intensive research and development as well as a technical know-how to develop and manufacture premium contact lenses that are difficult to replicate. We also believe Bausch bolsters brand power through an evolutionary compounding of clinical and technical improvements in its products. All this effort by Bausch reinforces positive perception within its practitioner base, which requires a lot of effort from a competitor to dismantle and convince otherwise.

We also see signs of switching costs in Bausch's lens business. In the US, a patient must get a prescription from an eye care professional, or ECP, to purchase contact lenses, and each prescription is brand specific. Most ECPs stick with just one or two brands because they have strong relationships with manufacturers due to brand loyalty and rebates. They are also unlikely to mix brands because they want to stick with and prescribe products that they are familiar with. Each contact lens fits differently, and material behavior is different with all soft lenses, so once someone finds contact lenses that they enjoy wearing without any issues, it is highly likely that they will stick with the same ones year after year. And we see this in action—on average, a patient sticks with the same contact lenses for seven years. Contact lenses typically come in six- or 12-month supplies, creating further disincentives to switch brands frequently. Also, once customers are comfortable with a product, they are unlikely to switch lenses unless they are trading up for superior products (for example, switching from monofocal to multifocal or toric). In fact, the contact lens market is fairly resilient to macroeconomic conditions because contacts are seen as essential expenditures.

We believe Bausch’s consumer eye care products enjoy a narrow moat from intangible assets. In the lens care solutions space, Bausch and Alcon control most of the market thanks to superior brand perception and product quality. Branded products like Bausch’s Biotrue hydration plus multipurpose solution are generally made with more up-to-date formulations compared with generic counterparts and have either low or no preservatives, leading to high customer preferences. In the over-the-counter eye care space, Bausch has Lumify, a number one physician-recommended product in the eye redness reliever category. Since its launch in 2018, Lumify has able to gain share and it now controls over half of the redness reliever market. And it was able to do this even at a price point that is much higher than the players that had existed prior to its launch—Lumify, on a dollar per milliliter basis, usually costs 5 times or more compared with its competitors. We attribute this to the product superiority and see this as another example of Bausch’s proven track record of launching highly technical products.

Implantables is made up of a set of intraocular lenses, or IOLs, that tackle various vision correcting needs. By our estimate, Bausch controls a high-single-digit percentage of the IOL market. Unlike contact lenses that patients can try for themselves and pick a preferred option, doctors decide which intraocular lenses would be the most suitable for each case. And it is vital for doctors to be fully comfortable with lenses they use, because a misplaced lens can cause blurred or double vision, swelling, and bleeding that requires extra surgeries to correct. So we believe doctors having success with Bausch’s IOLs would be reluctant to switch to another product and risk poor patient outcomes after surgery.

Bausch’s equipment is composed of machines used to treat cataracts, refractive errors, and vitreoretinal disorders. We believe Bausch controls roughly 20% of the installed base of phacoemulsification machines (used to remove cataracts) and vitrectomy machines. The life cycle for ophthalmic capital equipment is about 10 years, and equipment manufacturers generally launch new equipment in line with this life cycle (Bausch launched the Millennium phaco system in 1997, Stellaris in 2007, and Stellaris Elite in 2017). In our view, Stellaris Elite doesn’t have any particular innovations that could allow Bausch to take share from market leader Alcon, but the company is likely to maintain its share.

We don’t believe Bausch’s ophthalmic pharmaceutical segment warrants a moat rating. More than half of the segment is driven by Miebo and Xiidra, two dry eye treatments, but the portfolio also includes a number of smaller branded and off-patent drugs. While we appreciate Bausch for having a broad line of pharmaceuticals for a wide variety of eye conditions, we don’t currently see a moat in this business. The firm's pipeline has improved over the past couple of years, and we do see a number of assets that could likely launch in the midterm, but the ophthalmic pharma market remains highly competitive and we see limited upside to Bausch coming up with potential blockbuster candidates.

Bausch has a strong commercial position in both contact lens and consumer eye care products, and this should drive solid growth over the long term.

Bausch's investment in its pharmaceutical portoflio over the past few years is paying off with Miebo and Xiidra contributing nice growth to both top and bottom lines.

Bausch's pipeline is filled with exciting launches across the portoflio, and we expect new launches every year for the next five years.

Bausch faces stiff competition across all segments that it plays in, and the lack of investment in its pipeline could leave the firm vulnerable to market share losses.

Bausch’s full separation depends on its former parent company’s ability to deleverage, and this might interfere with Bausch’s complete autonomy.

Bausch's balance sheet is significantly more levered compared with its key peers, which could put pressure on the firm's ability to reinvest in its business and limit future capital allocation priorities.