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:

• Refinancing of credit notes: The company is planning to refinance its existing credit agreement with ~USD 2.5 billion of term B loans and a USD 975 million revolving credit facility. This agreement is expected to occur upon the completion of the initial public offering (IPO) of Bausch + Lomb Corporation, which includes the eye care division of Bausch Health BHC. Earlier the management announced their intention to separate its eye health business and has publicly filed a Registration Statement with U.S. Securities and Exchange Commission and the securities regulatory authorities in each of the provinces and territories of Canada, respectively.

• Received approval for JUBLIA® (efinaconazole) Topical Solution, 10%: Recently, the company received American Podiatric Medical Association (APMA) Seal of approval for its JUBLIA ^® (efinaconazole) Topical Solution, 10%, intended to use for the treatment for onychomycosis, a fungal infection of the toenails. This approval is granted to products which promote good foot health and are of significant value when used in a consistently applied program of daily foot care and regular professional treatment. Notably, the Toenail fungus disease is a highly contagious infection, and is common among the Americans.
  

• Robust 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. Moreover, the net profit margin stood at 9% in Q3FY21, higher than the industry median of 5.4%. A higher profit margin indicates improved operational efficiencies.
  

Q3FY21 Financial Highlights:

• BHC declared its third quarter results, wherein the group posted revenue of USD 2,111 million, slightly lower from USD 2,138 million in the previous corresponding period (pcp). The decline was primarily due by lower income from product sales segment.
• 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 income of USD 191 million, jumped from USD 70 million in Q3FY20. Interest expense stood lower at USD 351 million, versus USD 374 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group

Stock Recommendation:

The company does not have any meaningful debt maturity till 2025, which indicates prudent capital management. Within the Bausch + Lomb, the company’s Global Vision Care saw 6% organic revenue growth on y-o-y basis, driven by higher demand dynamics. The company’s LUMIFY® and Ocuvite® + PreserVision® has shown growing interest from the global consumers which resulted to 7% organic revenue growth in its Global Consumer segment, which represents ~40% of the Bausch + Lomb revenue. We have valued the stock using EV to Sales based relative valuation approach and arrived at a target price offering double-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 31.18 on January 20, 2022.

One-Year Technical Price Chart (as on January 20, 2022). Analysis by Kalkine Group

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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