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Sometimes you just need to wipe the slate clean and start fresh.
And that’s exactly what Bausch Health Companies Inc (TSX:BHC)(NYSE:BHC) — formerly Valeant Pharmaceuticals — has done.
It even changed its name after so sorely disappointing the investment community amidst its fall from grace between 2015 and 2017, where the company’s stock at one point had lost over 95% of its value.
At one point it looked as though that may have been curtains for this biopharma company, but thanks to some clever maneuvering on the part of company management, it appears they’ve been able to right the ship, which has led to BHC stock having more than doubled from its April 2017 lows marked a little less than 18 months ago.
But it is probably still not too late to get in on the turnaround story and here’s why.
Back when it when by its old moniker, Valeant, the company famously went on a mergers & acquisitions shopping spree, spending more than US$27.7 billion between 2011 and 2015 and culminating in $15.5 billion in acquisition expenses in 2015.
The prevailing theory was that rather than investing billions in research and development costs, which weren’t guaranteed of delivering any successful pharmaceutical products, the Valeant would instead go into the market and pay up front to acquire companies that already had developed and proven products in place.
However, while it may have been a great idea in theory, when things didn’t exactly go as planned, the company realized it had a real serious problem on its hands in terms of not being able to service its financial obligations with cash on hand.
What it did instead was to sell off parts of its business in which it didn’t see a long-term future.
After all, when you’ve just gone on a $27.7 billion shopping spree, you probably own a few things that you can afford to get rid of.
So that’s just what it has done, and in doing so, the company been successful in retiring nearly $7 billion in debt since the first quarter of 2016.
With that out of the way, Bausch now doesn’t have any more maturities coming due until 2021 other than some minor amortization payments that it has to continue making.
That’s great news for BHC stockholders because now that it has been able to resolve the outstanding legacy issues, it can go back to reinvesting the billions in free cash flow that it generates annually toward meaningful new growth opportunities.
Keep in mind that 78% of the company’s total revenue comes from its Bausch + Lomb/International and Salix segments, which saw 6% year-over-year growth in the second quarter.
Meanwhile, almost inexplicably, the BHC shares continue to trade at heavily discounted valuations, with a forward price-to-earnings (“P/E”) ratio of under 7 times as of Friday’s trading.
With its financial issues now firmly in the rearview mirror, this could be a great opportunity for deep value and contrarian investors who following the latest rise in September, might want to look at buying in on the next dip in BHC’s stock price.
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Fool contributor Jason Phillips may initiate a position in Bausch Health Companies. The Motley Fool owns shares of Bausch Health Companies.