Bausch Health Companies Inc.

Bausch Health Companies Inc. (TSX: BHC) is a global specialty pharmaceutical, consumer health, and medical device company. The group operates through its branded products for the dermatology, gastrointestinal, and ophthalmology markets. 

Key updates:

• Surge in cash flows: In 9MFY21, the company reported its cash flow from operations of USD 1,402 million, considerably higher than USD 717 million in pcp. The surge was primarily due to improved working capital management. Higher cash from operations is likely to support the company’s overall liquidity.

• Improved profit margins: At the end of Q3FY21, the company reported its gross margin and EBITDA margin of 72.4% and 37.8%, respectively, higher than the industry median of 70.2% and 24.5%, respectively. Additionally, the pretax margin stood higher at 10.2%, as compared to the industry median of 7.3%. A higher profit margin indicates improved operational efficiencies.

• Approval for JUBLIA ®Topical Solution, 10%: Recently, the group reported approval from American Podiatric Medical Association (APMA) for its JUBLIA ®Topical Solution, 10%, which is used for the treatment of onychomycosis, a fungal infection of the toenails. The above approval indicates the safety and efficacy profile of JUBLIA ® and its usage as the treatment option for adults and children with toenail fungal infections.

Q3FY21 Financial Highlights:

• BHC announced its quarterly results, wherein the company posted revenue of USD 2,111 million, marginally slide from USD 2,138 million in the previous corresponding period (pcp). The decline was primarily due by lower income from product sales.
• The company reported a total expense of USD 1,537 million, slide from USD 1,678 million in pcp. The quarter was marked by higher selling, general and administrative costs and higher research & development cost, partially offset by an other income of USD 183 million, as compared to other expense of USD 18 million.
• Operating income surged to USD 574 million, from USD 460 million in Q3FY20, supported by lower operating expenses.
• The company posted a net loss of USD 191 million, jumped from a net income of USD 70 million in Q3FY20.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The products of the company require approval from the medical authorities, which are subjected to periodical trials. Any delays in the trial due to unforeseen results might hinder the company’s overall operations.

Valuation Methodology (Illustrative): Price to CF based

Stock Recommendation:

For FY21, the company expects it revenue of USD 8.40 to 8.60 billion, while its Adjusted EBITDA on a non-GAAP basis was projected in between USD 3.35 to USD 3.50 billion. The management has lowered its expected R&D expense for FY21 at USD 480 million, as compared to the previous guidance of USD 500 million. We have valued the stock using Price to CF based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Viatris Inc, Bristol-Myers Squibb Co etc. Hence considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of BHC at the last traded price of CAD 31.47 on December 14, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on December 14, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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