Bausch Health Companies Inc

Bausch Health Companies Inc (TSX: BHC) is a multinational, specialty pharmaceutical and medical device company that develops, manufactures and markets a broad range of branded generic pharmaceuticals, over-the-counter products and medical devices.

Key Highlights 

• Healthy Full-Year 2021 guidance: The company has prioritized its durable products which it feels have the potential for high operating margins and growth. As a result, management has provided a positive outlook for FY2021 revenue, which they estimate to rise by 3% to 5% and be in the range of USD 8.6 to 8.8 billion. The adjusted EBITDA is anticipated to increase by 4% to 7%. Furthermore, management anticipates a gross margin of about 71% and adjusted cash from operations of USD 1.5 billion.
  

• Robust Growth in Cash flows: The group reported a surge in the cash from operations, which stood at USD 443 million, significantly higher than USD 261 million in Q1FY20. The increase in cash from operations is a positive sign for the company.
  

• Reducing Debt: Recently, the company announced it would reduce debt by USD 150 million through the redemption of outstanding senior notes, using cash generated from operations. Furthermore, in Q1 2021, it repaid USD 200 million of its debt, bringing total debt at USD 23,985 million on March 31, 2021. The company is minimizing its total debt, which is commendable. Additionally, the company has no mandatory amortization payments or debt maturities until 2024.
  

Financial overview of Q1 2021 (In millions of USD)

Source: Company 

• In Q1 2021, the company posted revenue of USD 2,027 million compared to USD 2,012 million in the previous corresponding period (pcp). The improvement was primarily driven by improvement from Global Vision Care Revenue driven by the ramp of astigmatism line extensions coupled with new launches within the segment.
• It reported an increase in total expenses to USD 2,248 million against USD 1,764 million in Q1 2020. The increase in expenses was primarily due to the higher cost of goods sold and inclusion of Goodwill impairments.
• The company reported an operating loss of USD 221 million, compared to an operating income of USD 248 million in Q1FY20.
• The net loss posted by the company in reported period stood at USD 607 million, as compared to a net loss of USD 152 million in Q1FY20.
  

Risks associated with investment

Due to the ongoing restriction caused on account of pandemic, the group might witness a setback in its overall demand and face a hindrance in the supply chain and logistics. 

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

The company entered FY 2021, with strong momentum where its business is generating strong cash flow, many of its leading products have increased market share in key markets, along advancing its pipeline. Furthermore, the management has shared healthy guidance on vital numbers for FY2021 and is also decreasing its total debt, which is a key positive point. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock at the closing price of CAD 35.37 on July 27, 2021. We have considered Teva Pharmaceutical Industries Ltd, Viatris Inc, Jazz Pharmaceuticals PLC, etc., as the peer group for the comparison.

One-Year Price Chart (as on July 27, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Canada Goose Holdings Inc.

Canada Goose Holdings Inc. (TSX: GOOS) is a leading luxury apparel manufacturer company which designs, manufactures, distributes, and retails premium outerwear for men, women, and children. The products are sold through select outdoor, luxury and online retailers and distributors across America, Europe, Asia etc. 

Key Highlights:

• Impressive Outlook: For FY22, the company expects its revenue to touch one billion, higher than CAD 903.7 million in FY21. The increase is expected to be driven by improved performance from the company’s DTC segment. Moreover, the company expects its wholesale revenue to come at par with FY21.
  

• Healthy balance sheet: The company reported a constant decline in its D/E ratio in the recent quarters, which is impressive. Notably, in Q4FY21, GOOS reported a D/E of 1.04, lower than the previous three quarters.
  

Q4FY21 Financial Highlights:

• GOOS announced its quarterly results, wherein the company posted revenue of CAD 208.8 million, surged from CAD 140.9 million in the previous corresponding period (pcp). The increase was primarily attributable to higher direct to consumer (DTC) revenue (CAD 172.2 million versus CAD 114.2 million in Q4FY20), driven by strong growth from eCommerce growth and continued retail expansion in Mainland China.
• Gross profit climbed to CAD 138.6 million, from CAD 93.6 million in Q4FY20. The surge was primarily due to higher revenue, partially offset by a higher cost of sales (CAD 70.2 million v/s CAD 47.3 million in pcp).
• The company reported its operating income of CAD 7.8 million, as compared to an operating loss of CAD 17.2 million in pcp.
• The company posted a net income of CAD 2.9 million, as compared to CAD 2.5 million in the previous corresponding period.

Q4FY21 Income Statement Highlights (Source: Company Report)

Risks: Extension of government’s restrictions for the closure of stores would be likely to dampen the company’s sales volume and the overall performance of the company.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

In Q4FY21, the company reported strong growth in its eCommerce segment (~123% y-o-y) across the globe, supported by changing preferences of the consumers towards online purchase due to restrictions imposed across the major geographies. Moreover, the company’s DTC segment performed well and reported its operating margin of 44.4% in Q4FY21 compared to 38.2% in pcp, primarily due to higher revenues from eCommerce segment, which carries higher margins than retail stores (better revenue mix). The company has an impressive brand presence, while its recent collection like Cypress and Crofton, along with the NBA All-Star collaboration, is likely to support the company’s future performance. We have valued the stock using Price/CF-based relative valuation approach and considered industry mean (Consumers Cyclicals) on an NTM basis and arrived at a target price offering single-digit upside potential (in % terms).  Hence, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 52.80 on July 27, 2021.

One-Year Technical Price Chart (as on July 27, 2021). Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.