The company develops, manufactures and markets a range of pharmaceutical, medical device and over-the-counter products, particularly in the therapeutic areas of eye health, gastroenterology and dermatology.
CEO Joseph Papa differs from his predecessor, Michael Pearson in one significant way: he delivers on commitments and is one of the best CEO’s in Canada today. Bausch Health looks to build an innovative company dedicated to advancing global health.
Bausch Health had received a lot of negative publicity until 2018 due to the faulty practices of the prior management.
The company recently raised $4 billion in debt maturing in 2022 and 2024, with covenants that are less onerous than the other term loans that the new debt will replace. This was a big deal, as the new covenants included the removal of several earlier covenants that had the potential to cripple the company.
The company publicly announced that it would use net proceeds to repay shorter-term maturities. This is a critical step for Bausch Health because it removes the threat of technical default in the short term, giving management the flexibility to continue to turn the company around and return it to long-term profitability.
Bausch Health has been working hard to reduce a huge debt load of approximately $28 billion. Management has indicated that they are striving to reduce debt by $8 billion through a combination of income and the asset sales.
The company appears to have a diversified revenue stream as a result of forging partnerships with several health care providers. Much of Bausch and Lomb’s revenues are resistant to price increases.
The company generates significant amounts of free cash flow: nearly $1.8 billion of free cash flow per year. At a market cap of $6 billion, it appears that Bausch Health is trading very inexpensively at a price to sustainable earnings ratio of under 5 times earnings.
It’s certainly encouraging to witness management’s intention to use earnings to pay down debt, which holds the potential to significant increase the company’s trading multiple, as it would make the company less risky. Assuming management follows through on the stated intention, the intrinsic value of Bausch Health could be much higher than the current price.
Bausch Health as the turnaround opportunity of a lifetime. The Company made considerable progress in 2019 and is still improving and firing on all cylinders, which could carry over into 2020 and beyond.
In the past two years, the company has completed several divestitures to streamline operations, continued to pay down debt, resolved numerous key legacy issues, launched new products and realigned the business.
The year 2020 appears to be a year of growth for Bausch Health — several new products are scheduled to be introduced and the company is focused on making huge amounts of debt payments which will increase the value of the company due to reduced risk. Patient investors can profit handsomely by owning this stock.
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Fool contributor Nikhil Kumar has no position in any of the stocks mentioned.