Bausch Health: Prescription for Profits or Risky Business?

With a struggle to grow and a massive debt burden, Bausch Health stock remains a very risky bet. Proceed with caution.

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As far as turnaround stories go, Bausch Health Companies (TSX:BHC) sure has its share of conflicting opinions. Its story is long and complicated. But is Bausch Health stock, which traded north of $330 back in 2015, a stock that’s worth buying today?

Let’s look into this.

The largest Canadian pharmaceutical/consumables stock

The pharmaceutical industry is dominated by the large U.S. multinational pharma companies. They have secure hold on this lucrative, trillion-dollar industry, and this hold has only gotten stronger in the last few years. So, what is Canada’s Bausch Health’s place in this world, and what is holding this company back?

Simply put, Bausch Health has a sordid history that includes unreasonable price hikes, aggressive acquisitions, and the assumption of a tremendous amount of debt. Today, the company is still paying for these transgressions, both literally and figuratively. For example, the company has paid more than $1 billion to settle these lawsuits. Also, Bausch Health is often met by skepticism, which is due to its legacy.

Bausch Health’s latest results

The company’s first-quarter results were a reflection of the difficult situation that Bausch Health still finds itself in. Reported revenue increased a mere 1%, and organic revenue growth was a better, but still paltry, +4%. Yet within the business, there are some franchises that are seeing healthy growth. For example, Bausch’s drug Relistor, which is for treating constipation, saw a 29% increase in revenue. Also, Trulance, which treats irritable bowl syndrome, saw a 19% increase in revenue.

Real growth remains elusive

But despite these glimmers of what could be, Bausch is plagued by a lacklustre overall business. In fact, revenue declined 3.7% in 2022. Furthermore, the company’s expectations for 2023 are for revenue of between $8.35 billion and $8.55 billion. This represents a growth rate between a mere 2.8% and 5.2%. At least it’s growing, I guess. The company also expects operating cash flow to come in at $625 million.

So, while I have been encouraged by the company’s cash flow generation, there are other, more pressing issues that outweigh this positive. My view is that the company has potential, but the risk remains too high.

Debt remains a problem and a limiting factor

In Bausch Health’s prior existence as Valeant Pharmaceuticals, the company piled on the debt, as it continued to fuel massive growth via acquisition. At the time, this was celebrated and rewarded by the market, and Bausch Health stock soared to more than $330 per share. But this strategy was never sustainable, and today Bausch Health remains saddled by its debt.

Obviously, Bausch is attempting to gain control over its balance sheet. Det reduction is a priority for the company. In the first quarter, the company paid off $105 million of its debt. Its debt level remains above $16 billion. This compares to its 2023 expected operating cash flow of $625 million.

The risk remains high with Bausch Health stock. It definitely does not have the typical defensive attributes of a healthcare stock. So, while it’s unfortunate, I think that it’s best to wait it out. If you’re thinking of buying BHC stock, I would wait for the risk/reward profile to improve.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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