The Future Looks Bright for VISX New technology is about to give a boost to this maker of vision-correction lasers.
By Julia Boorstin

(FORTUNE Magazine) – Americans, it turns out, are wild about having their corneas sliced. Corrective laser eye surgery, which debuted in 1995, is now the most common elective surgical procedure in the United States. Of late, though, the floundering economy has cut into the demand for vision correction, which runs $800 to $2,500 per eye and usually isn't covered by insurance. But the industry should get a boost with the expected FDA approval of a new, improved form of the surgery by summer.

A prime beneficiary of the technique, called custom ablation, will be VISX (EYE, $12), the nation's largest maker of vision-correction lasers, with 60% of the market. VISX's stock rose as high as $104 in 1999 as laser eye surgery exploded in popularity. But as the number of surgeries has dropped--from 1.4 million in 2000 to 1.1 million last year--so have VISX's sales. Revenues are down 30% over the past two years.

Custom ablation, which gives doctors a much more precise map of each person's eye, has so far shown better results with a lower risk of mistakes. And VISX, which earns a third of its revenues from selling equipment and the rest from per-surgery royalties, will charge more per procedure (probably twice the current $100 fee). CEO Liz Davila says that converting just 20% of surgeries to the new technology will add 40% to earnings.

Analysts like UBS Warburg's Charles Olsziewski are waiting for an economic recovery before turning bullish. But with zero long-term debt and plenty of cash on hand, VISX is well positioned for the long haul. "This is amazing technology, and it's not going away," says Olsziewski. That's good news for investors with an eye to the future. --Julia Boorstin