As the largest pharmaceutical/biotech company on the TSX, Bausch Health Companies Inc. (TSX:BHC) stock holds a special place in my heart. I think it’s great for the TSX and Canada to have a presence in this lucrative and promising industry. So it gives me pleasure to see that Bausch Health stock rose 24.5% last month.
Let’s dig into this to help us decide where BHC stock will go from here.
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Debt remains a problem and a limiting factor
Bausch Health certainly has a sordid history. Looking back, the company engaged in numerous questionable decisions, seemingly all in the goal to grow at all cost. For example, Bausch Health piled on the debt as it continued to fuel massive growth via acquisition. Also, the company instituted obscene drug price increases. And then there were the accounting “irregularities”. This all blew up a few years ago. Many investors lost a lot of money as the stock tumbled.
And to be sure, some of the past bad decisions still haunt the company and this health stock. For example, right now, Bausch Health is still saddled with a shocking $16.6 billion debt balance. This compares to its cash flow from operations of $1 billion in 2022. It’s clear that the debt remains cripplingly high despite the fact that the company is slowly paying it down. In fact, Bausch Health has paid off $3.2 billion of debt since 2020. While this is certainly welcome, it feels like a small drop in the bucket.
Will the Bausch & Lomb spin-off create value for Bausch Health stock?
Today, much of the controversy and scandalous behaviour has melted into the background. Litigations are being settled, pricing has come in line, and new leadership is intent on rectifying a business that truly does have strong potential.
One of the slivers of hope is the company’s plan to spin off Bausch & Lomb. This would create two independent companies, and would act as a clear catalyst of value creation to look forward to. While it still has some hurdles to go through, this transaction would give Bausch Health a rerating as the deleveraging potential would be significant. Also, two more focused companies would come out of it. They would presumably be more successful due to the lower leverage and greater focus.
Encouraging Bausch Health outlook but risky stock
So, when we think of Bausch Health stock, we probably think of one of two things. First, we may get nervous as we remember its notorious days of irresponsible behaviour. But we may also feel a sense of hope as we watch this stock that has been battered and bruised – but still survives. In fact, it’s pretty remarkable that Bausch Health is still operating its business despite being down 97% from its 2015 highs.
The fact that Bausch and Lomb is still around is probably a function of some luck mixed with some good business moves. The stock has climbed significantly recently. This is due to signs that the business is stabilizing and even finally growing. For example, in Q4 2022, revenue increased 2%. Also, the company has given guidance for revenue of $4.5-to-$4.6 billion in 2023, for a 2-to-5% year-over-year growth rate. Furthermore, Bausch Health is posting double-digit growth in some of its key products.
Motley Fool: The bottom line
In closing, I would like to comment on BHC stock’s valuation, which is low because of the risks involved. However, if you are willing and able to add a high risk/high return stock to your portfolio, I think it could be one of the best decisions you make this year.
