Why Bausch Health (TSX:BHC) Stock Is a Smart Risk to Take

Bausch Health (TSX:BHC)(NYSE:BHC) stock falls, as guidance is reduced due to coronavirus disruptions, but if we look beyond this temporary setback, we can see promise.

| More on:

Bausch Health Companies (TSX:BHC)(NYSE:BHC) stock fell in early May after the company reduced its guidance due to coronavirus demand disruptions. Reduced guidance is not something that we like to see. However, I think we have to commend management for at least trying.

As per management’s comments on the conference call, their outlook is based on a broad range of possible outcomes. In short, they have tried their best to provide investors with some direction in this unpredictable time.

Let’s look at Bausch Health stock a little more closely. Is this stock worth the risk?

Bausch Health stock is supported by improved liquidity and balance sheet

Regrettably, Bausch Health has suffered a setback with its debt-reduction plan due to the coronavirus effect. Cash flow from operations was $369 million in the first quarter. Management expects it to come in at over $1 billion for the year. The company repaid $220 million of its debt in the quarter. The point here is that debt reductions are slowly but surely happening.

While this happens, a key consideration is whether the company has acceptable liquidity. And this it does. There are no mandatory amortizations payments or debt maturities until 2022. Bausch Health has a $1.225 billion undrawn revolving credit facility.

Bausch Health stock will be driven by its strong, defensive business

On the business side of things, Bausch has some strong drivers as well as challenges related to the coronavirus. All told, the coronavirus negatively impacted first-quarter revenues by 3%. This was primarily the result of three factors: The postponement of elective surgeries reduced Bausch Health’s surgical business units; retail closures and lower contact usage negatively affected the international vision business; and medical closures in general led to lower prescriptions.

To be sure, the disruptions have escalated into the second quarter, so we can expect continued pressure on all of these things. But let’s remember that these disruptions are temporary. The healthcare/pharmaceutical business is essential. Even elective surgeries are critical. And some of the company’s drugs continue to see strong prescription growth. I think we can count on the return of demand in Bausch Health’s businesses, although this will be a gradual return.

Baush Health operates globally. This diversification will mean that the outlooks in different countries will differ dramatically. The company continues to advance its pipeline and is even working on COVID-19 therapies.

As an example, Bausch has Virazole in clinical trials for the treatment of COVID-19. Canada and the U.S. have already approved this drug. It treats severe pneumonia and respiratory infections in infants and young children caused by the respiratory syncytial virus. Virazole’s two key benefits are that it is inhaled directly into the lungs and that it limits viral replication.  The drug has already been given to patients on a compassionate use basis.

Foolish bottom line

The bottom line on Bausch Health Sciences stock is that visibility and predictability are low. While Bausch Health’s business is a defensive one, coronavirus disruptions are being felt. Couple that with the company’s still excessive debt levels, and we can see that risk levels are elevated. This being said, there are definitely some redeeming qualities in Bausch Health. That means that Bausch Health stock warrant consideration for those investors that are open to a higher risk profile.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has no position in any of the stocks mentioned. Tom Gardner owns shares of Bausch Health Companies. The Motley Fool owns shares of and recommends Bausch Health Companies.

More on Coronavirus

A airplane sits on a runway.
Coronavirus

3 Fresh Stocks I’m Likely Buying in 2025

I am likely buying Air Canada (TSX:AC) stock in 2025.

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Coronavirus

Canadian RRSP Stocks to Buy Now for Retirement

Alimentation Couche-Tard Inc (TSX:ATD) is a quality retirement stock.

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Coronavirus

Retirees: What Rising Inflation Means for Your CPP Payments

If you aren't getting enough CPP, you can consider investing in stocks and ETFs. Canadian National Railway (TSX:CNR) is one…

Read more »

Coronavirus

Air Canada Stock Is Starting to Get Ridiculously Oversold

Air Canada (TSX:AC) has been beaten down to absurd lows.

Read more »

Coronavirus

Should You Buy Air Canada Stock While it’s Below $18?

Air Canada (TSX:AC) stock is below $18. Should you invest?

Read more »

Illustration of data, cloud computing and microchips
Stocks for Beginners

3 Canadian Stocks That Could Still Double in 2024

These three Canadians stocks have been huge winners already in 2024, but still have room to double again in the…

Read more »

Aircraft Mechanic checking jet engine of the airplane
Coronavirus

Can Air Canada Stock Recover in 2024?

Air Canada (TSX:AC) stock remains close to its COVID-19 era lows, even though its business has recovered.

Read more »

A airplane sits on a runway.
Coronavirus

3 Things to Know About Air Canada Stock Before You Buy

Air Canada stock continues to hover below $20 despite the sharp rise in travel demand seen across the industry. What's…

Read more »