Essilor reported year-end results on Tuesday within analyst’s expectations. This quarter showed continued stability in the economically constrained markets of Europe and North America, while Essilor’s emerging market operations maintained strong double-digit growth. While analysts continue to appreciate Essilor’s growth opportunities and wide economic moat, shares remain overvalued, trading near 25 times the 2013 consensus EPS estimate.
Essilor reported 12.8% revenue growth in the fourth quarter, including 3.6% organic growth and 6.9% growth from acquisitions. Revenue growth fell slightly below our forecast, likely from fewer gains from Hoya’s manufacturing issues. Management added seven new partnerships and continues to broaden its lens laboratory reach, particularly in high-growth emerging markets. Iimproving economic conditions are expected in the U.S. and Europe and ongoing consolidation can sustain high-single-digit growth over the near term.
Marketing efforts to boost utilization of lens technology in the U.S., including the 2013 launch of a blueviolet lens filter to enhance eye protection, also remains an attractive opportunity. Product mix toward newer products and efficiency gains helped boost gross margin over the latter half of the year, but integration efforts should sustain an operating margin near 18% in 2013.
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