Bausch Health's (BHC 1.74%) stock price has declined by 48% over the past three months, compared with a 20% decline in the overall market. While Bausch's non-discretionary eye care products should hold up well in an economic downturn, the company's poor balance sheet is scaring away investors in these uncertain times.

With the coronavirus pandemic threatening to plunge the global economy into its deepest downturn since 2008, the market is justifiably worried about highly leveraged equities. But despite Bausch's high debt load, management is making convincing progress toward getting the debt under control while generating sustainable organic growth.

Patient having her eyes examined by an opthalmologist.


Bausch entered 2020 on a strong footing

When it comes to Bausch Health, there are three things the market is looking for: organic revenue growth, debt reduction, and cash flow. The company has a somewhat sordid history of driving growth through debt-fueled acquisitions and price hikes. But with the debt pile already so large and government regulators watching the pharmaceutical industry's pricing policies, it is time for a new strategy.

Bausch Health delivered on all three fronts in the fourth quarter of 2019. Total sales grew 5%, from $2.12 billion to $2.22 billion. This growth was powered by two of the company's four core business segments: Bausch + Lomb International and Salix.

Bausch + Lomb International, the company's ophthalmology business, grew sales by 4%, from $1.21 billion to $1.24 billion. And sales at Salix, the gastrointestinal business, were up 21%, from $426 million to $517 million. The dermatologic segment was flat, showing a 1% decline from $160 million to $158 million. The diversified products segment fell by 5%, from $330 million to $311 million.

Bausch Health generated $1.5 billion in cash from operations in the full year of 2019 and repaid $1.1 billion in debt. Right now, the company has about $24.7 billion in long-term debt on its balance sheet and $3.2 billion in cash.

Can Bausch Health survive a 2020 recession?

Management has not yet revised guidance for 2020. And this makes sense, because the company's core gastrointestinal and ophthalmology businesses probably won't be affected by the coronavirus pandemic. In addition, historically low interest rates may help Bausch Health manage its high debt load through refinancing and other strategies.

Bausch Health management believes 2020 revenue will be in the range of $8.65 billion to $8.85 billion, and adjusted EBITDA will be in the range of $3.50 billion to $3.65 billion. A full-blown recession, with consumers losing their jobs and putting off medical expenditures until the crisis is over, would probably push these figures to the low end of the guidance range. But even then, the company should generate enough cash flow to meet its debt obligations.

As of the most recent annual report, Bausch Health Companies had $103 million in debt principal payments due in 2020 and 2021. On March 13, the company announced plans to pre-pay these senior secured loans with cash from operations. When the process is complete, the company won't have any mandatory amortization payments until 2022. This means Bausch Health can coast through a potential near-term economic downturn without running into solvency issues.