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BHC

Bausch Health Companies NYSE:BHC Stock Report

Last Price

US$5.84

Market Cap

US$2.1b

7D

27.2%

1Y

-78.8%

Updated

08 Aug, 2022

Data

Company Financials +
BHC fundamental analysis
Snowflake Score
Valuation5/6
Future Growth3/6
Past Performance0/6
Financial Health2/6
Dividends0/6

BHC Stock Overview

Bausch Health Companies Inc., together with its subsidiaries, develops, manufactures, and markets a range of pharmaceutical, medical device, and over-the-counter (OTC) products primarily in the therapeutic areas of eye health, gastroenterology, and dermatology.

Bausch Health Companies Inc. Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Bausch Health Companies
Historical stock prices
Current Share PriceUS$5.84
52 Week HighUS$29.59
52 Week LowUS$4.00
Beta1.35
1 Month Change-33.18%
3 Month Change-37.87%
1 Year Change-78.76%
3 Year Change-73.81%
5 Year Change-57.59%
Change since IPO1,068.00%

Recent News & Updates

Jul 31

Bausch Health: How To Price The Calamities

Recent court ruling has severely damaged the value of BHC. Insolvency for BHC is unlikely, primarily because they can unload their stake in BLCO and IPO Solta Medical. Avoidance of insolvency may entail foregoing the distribution of BLCO to shareholders. Overview In recent months, the two biggest events that have affected Bausch Health Companies (BHC) are its reluctance to IPO its fast-growing aesthetic medical device business Solta Medical and very recently a Delaware court’s ruling, which will effectively make its largest drug Xifaxan go off patent. While the delayed IPO of Solta Medical may have ostensibly reduced shareholders' returns due to a longer time frame for a multiple expansion, it has not necessarily reduced the company’s intrinsic value. The latter development, however, indubitably and immediately decreases the value of the company and may in fact necessitate dramatic action from management in order to ensure BHC remains solvent. In this article, I will examine how these changes will affect the value of BHC and what actions must be taken to ensure BHC’s solvency and if the stock at present levels is undervalued. In addition, it should be noted that if BHC’s appeal of the recent court ruling is successful, my commentary on the ramifications of the recent court ruling would be rendered mute. Solta Medical IPO The intention of the IPO of Solta Medical was simply to reduce BHC’s > $20 billion debt load. In my previous article on BHC, I expected Solta Medical to generate at least $2 billion in proceeds in order to do this for BHC. However, due to the emerging bear market and other macro factors, as cited by management, this IPO has been suspended. I believe this is the correct decision. This is because a desire by BHC to rid itself of a non-essential business should not outstrip its desire to reduce its debt load significantly in the future. In addition, as Solta Medical continues to grow, it may well generate more proceeds for BHC in the event of a future IPO. Xifaxan Litigation On July 28, the U.S. District Court of Delaware ruled that BHC’s Salix segment’s patent for Xifaxan was valid for the reduction of risk of the recurrence of HE but its patents for protecting the composition and use of Xifaxan for IBS-D invalid. Being that IBS-D is a much more common disease than HE, this will presumably eliminate the majority of Xifaxan's revenue. In addition, this will eliminate most of the Salix segment's revenue and profits given that Xifaxan constituted 79% of its revenue in 2021. This will leave the Salix segment with approximately $500 million left in annual revenue and greatly reduced profit, if any, left after the elimination of Xifaxan’s most important patents. However, BHC is determined to appeal the ruling to the U.S. Court of Appeals. In addition, the Salix segment represented 53.6% of BHC’s self-reported profits in 2021, independent of BLCO. While the Salix segment may still be able to generate approximately $300-$400 million in profits (assuming its margins are equivalent to the rest of the segment’s products), this still would leave BHC non-FCF-generative, assuming remedial actions were not taken by management. The Risk of Insolvency If BHC management’s primary objective is to avoid insolvency, they have many options available to them. However, if their primary objective is to distribute BHC’s stake in Bausch + Lomb (BLCO) to shareholders, then the risk of insolvency increases dramatically. I do not believe BHC faces any immediate liquidity problems as their cash on hand is approximately $1.2 billion and they still have credit facilities they can draw upon. In addition, a possibility for BHC is that its product pipeline contains enough products to increase its EBITDA, thereby allowing BHC to retain more of its stake in BLCO. However, the more exotic, and arguably less shareholder-friendly options include a hurried IPO of Solta Medical in order to increase cash on hand and a sale of their stake in BLCO. A sale of BLCO common stock would greatly decrease their liabilities and interest expense to a point at which they would generate a few hundred million in FCF. However, it is also possible that BHC’s interest expense will increase as its EBITDA has gone down making its debt more risky, and that its interest expense can increase by way of the rising interest rate environment. BHC Product Pipeline (BHC Product Pipeline Presentation) The probability of a distribution of BLCO shares has decreased dramatically with the recent developments. And the time horizon for such a distribution has certainly increased. This is because it would almost be impossible to shoulder BHC’s debt load without BLCO distributing its FCF to its shareholders, and therefore BHC. It should be noted that BHC has discretion to make this decision as it is the majority shareholder in BLCO. As previously mentioned, BHC could also unload its stake in BLCO partially or in its entirety to shoulder its debt, while of course rendering mute the potential for an 80% distribution of BLCO shares to shareholders. BLCO Spinoff Prospects BHC must achieve its target leverage ratio of 6.5-6.7x EBITDA in order for the distribution of 80% of BLCO shares to be distributed to BHC shareholders. By my preliminary estimates, BHC loses at least $1 billion in EBITDA by the recent court ruling, making BHC necessarily reduce its debt by even more in order for the spinoff to take place. Therefore, assuming BHC avoids insolvency, returns for shareholders have necessarily been reduced. Furthermore, it is possible that if BHC needs to unload much of its stake in BLCO to remain solvent, then BHC shareholders will receive a smaller stake in BLCO than they otherwise would have. Being that BHC must reach its target leverage ratio of 6.5-6.7x, it must now reduce its debt of $16.415 billion by management’s most conservative estimate of 2022 EBITDA less my estimate of Xifaxan patent's contributions to EBITDA. Therefore, BHC must reduce its net debt by $5.5 billion. Therefore, it is my opinion that management could achieve such a deleveraging by IPOing Solta Medical, selling some of its stake in BLCO, perhaps reducing the stake available to be distributed to shareholders, or leveraging BLCO further to reduce BHC’s debt. These options would likely not raise the $5.5 billion necessary to distribute its stake in BLCO to shareholders, but it will free up more cash flow from operations to deleverage the remainder of the debt necessary to achieve the distribution. However, with current market conditions, BHC will likely have to wait until market conditions normalize for an IPO of Solta Medical to obtain a reasonable valuation and should also wait until the end of the current bear market to begin to unload their stake in BLCO, that is unless this is necessary for short-term liquidity needs.

Jul 18

Bausch Health: Uncertain, Far From Healthy, But Potentially Lucrative

Bausch Health continues to struggle after the ill-timed spin-off of Bausch + Lomb. This spin-off coincided with a higher interest rate environment, hurting the business from two angles. The set-up remains highly speculative and uncertain, yet value could emerge if the business and Bausch + Lomb can stabilize its operations. In May of this year, I concluded that new headwinds appeared for Bausch Health Companies (BHC) as the company has seen a tough start to 2022 as interest rates started to rise, creating higher future interest expenses on its huge debt load and a soft IPO of its Bausch + Lomb (BLCO) subsidiary. While these are far from encouraging trends, the valuation reset has been huge, creating a potential opportunistic investment opportunity. Amidst all these moving parts and some clearly negative developments, there are opportunities, but this remains a very risky play. The Thesis Bausch Health is the successor of Valeant, whose name was too toxic to still use in operations, after its deal- and price-driven expansion strategy went awfully wrong. In the aftermath of this, Valeant was an $8.7 billion business in the year 2017 on which a fat EBITDA number of $3.6 billion was posted. Despite this big number amount, the adjusted EBITDA number was quite adjusted as leverage was very high with net debt equal to $25 billion. What followed were years of stagnation as the company has been posting rather flattish sales and margin developments while gradually bringing net debt down to the $20 billion mark in 2021, a very modest pace of achievements. With the 360 million shares early in the year trading at $27, the resulting $10 billion equity valuation translated into a $30 billion enterprise valuation, equal to 4 times sales and 9 times EBITDA. The promise was that deleveraging and the Bausch + Lomb spin-off should provide a boost to the earnings performance of Bausch Health, but that all went wrong. After posting $8.4 billion in sales in 2021, EBITDA came in at $3.5 billion, as operating momentum was flattish. There were, however, two big issues. For starters was the fact that the company was rapidly facing higher interest expenses (going forward) on the still elevated net debt load given that interest rates have been moving higher. The other issue is that demand for Bausch + Lomb, the eye business, was not very strong which makes that Bausch Health did not deleverage as much as expected. The company originally guided for sales around $8.5 billion for the two businesses combined in 2022 with EBITDA seen flattish at around $3.5 billion. Net debt of $20.8 billion and interest costs of $1.4 billion were still quite high. The problem is that the company has been off to a soft start to the year, as the company lowered the sales guidance to roughly $8.3 billion and EBITDA at around $3.3 billion, with the EBITDA guidance including some dis-synergies from the split up of the company. Bausch sold 35 million shares of Bausch + Lomb in its IPO at $18 per share, raising $630 million in gross proceeds, but this was all far lower than expected as the preliminary pricing range was set between $21 and $24 per share. Bausch holds another 315 million shares which were valued at $5.7 billion at the offer price of $18 as Bausch + Lomb only saw $2.2 billion in net debt being allocated to itself from Bausch Health. This makes that Bausch + Lomb is essentially valued at $8.5 billion which compares to a $24 billion enterprise value of Bausch Health (including its ownership of Bausch + Lomb) at $10 per share, largely made up of debt of course. This furthermore reveals that Bausch + Lomb is valued at just around a third of the enterprise valuation of the combination, despite a greater revenue portion, although the eye business is far less profitable than the Bausch Health business. If the entire stake in Bausch + Lomb would be divested, the enterprise value would fall from $20.8 billion to $12.3 billion, yet EBITDA would fall from $3.5 billion to $2.7 billion, as leverage will come down but only in a relatively modest fashion to 4.5 times EBITDA. With so much of the enterprise value of Bausch Health represented in the form of debt, the equity is essentially a call option, and while it is a risky one, I allocated a tiny speculative position here in May. And Now? Between May and July, shares of Bausch have been trading sideways. After trading at $10 in May, shares initially dropped to the $7 mark, but now trade in the high $8s as the situation remains very uncertain and nervous as well. Part of this lower valuation comes as shares of Bausch + Lomb have fallen a bit as well, now trading at $15 and change after trading at a low of $13 and change in recent weeks.

Shareholder Returns

BHCUS PharmaceuticalsUS Market
7D27.2%-1.8%1.1%
1Y-78.8%2.0%-13.0%

Return vs Industry: BHC underperformed the US Pharmaceuticals industry which returned 1.9% over the past year.

Return vs Market: BHC underperformed the US Market which returned -12.9% over the past year.

Price Volatility

Is BHC's price volatile compared to industry and market?
BHC volatility
BHC Average Weekly Movement18.0%
Pharmaceuticals Industry Average Movement11.8%
Market Average Movement7.9%
10% most volatile stocks in US Market17.1%
10% least volatile stocks in US Market3.2%

Stable Share Price: BHC is more volatile than 90% of US stocks over the past 3 months, typically moving +/- 18% a week.

Volatility Over Time: BHC's weekly volatility has increased from 10% to 18% over the past year.

About the Company

FoundedEmployeesCEOWebsite
n/a19,600Tom Appiohttps://www.bauschhealth.com

Bausch Health Companies Inc., together with its subsidiaries, develops, manufactures, and markets a range of pharmaceutical, medical device, and over-the-counter (OTC) products primarily in the therapeutic areas of eye health, gastroenterology, and dermatology. The company operates through five segments: Bausch + Lomb, Salix, International Rx, Ortho Dermatologics, and Diversified Products. The Bausch + Lomb segment offers products with a focus on the vision care, surgical, and consumer, surgical, and ophthalmic pharmaceuticals products.

Bausch Health Companies Inc. Fundamentals Summary

How do Bausch Health Companies's earnings and revenue compare to its market cap?
BHC fundamental statistics
Market CapUS$2.11b
Earnings (TTM)-US$407.00m
Revenue (TTM)US$8.33b

0.3x

P/S Ratio

-5.2x

P/E Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
BHC income statement (TTM)
RevenueUS$8.33b
Cost of RevenueUS$2.37b
Gross ProfitUS$5.95b
Other ExpensesUS$6.36b
Earnings-US$407.00m

Last Reported Earnings

Mar 31, 2022

Next Earnings Date

Aug 09, 2022

Earnings per share (EPS)-1.13
Gross Margin71.52%
Net Profit Margin-4.89%
Debt/Equity Ratio-16,431.2%

How did BHC perform over the long term?

See historical performance and comparison