Bausch Health Companies Inc. (TSX: BHC) offers diversified health care products and engaged into developing, manufacturing and distribution of a range of pharmaceutical, medical device and over-the-counter products, majorly in the therapeutic areas of eye health, gastroenterology and dermatology.

Major Highlights to consider:

• During the first quarter of FY20, Bausch published pivotal Phase 3 data in Ophthalmology for XIPERE™, used as an investigational therapy with a proposed indication of treatment of macular edema associated with uveitis.
• The Company received U.S. 510(k) filing acceptance from the U.S. Food and Drug Administration for the Company’s innovative daily disposable silicone hydrogel contact lenses.

Guidance: For FY20, the Company expects its revenue within the range of USD 7.80 billion to USD 8.20 billion, while adjusted EBITDA is expected in between USD 3.15 billion to USD 3.35 billion.

Q1FY20 Financial Highlights: BHC declared its quarterly results, wherein it reported revenue of USD 2,012 million in line with Q1FY19 of USD 2,016 million. The quarter was marked by a flat revenue from Bausch + Lomb/International segment, while the Salix segment reported a 7% y-o-y growth aided by its XIFAXAN® product. The Company reported a higher operating cost and posted a lower operating income of USD 1,764 million as compared to USD 1,729 million in pcp. The decline in operating income was primarily attributable to increase in selling, general and administrative expense, research & development expense and asset impairments. Net loss widened to USD 152 million, as compared to USD 48 million in the previous corresponding period, due to lower operating income and an increase in loss on extinguishment of debt, partially offset by lower interest expense.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: Price to Earnings Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The group has not seen any material impact on its business owing to COVID-19 pandemic. All the facilities of the group are operational, and there are no supply chain disruptions to date. The Salix segment has delivered an impressive performance, and we expect the momentum to continue in the coming days. The Company has a healthy liquidity consisting of cash and cash equivalents of CAD 1.9 billion and revolving credit facility of CAD 1.1 billion, which seems to be sufficient to withstand the current crisis. The group has no mandatory amortization payments or debt maturities until 2022.  We have valued the stock using P/E based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered peers like Mylan NV, Bristol-Myers Squibb Co and Jazz Pharmaceuticals PLC. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 24.84 on May 22, 2020. 

BHC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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