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Why Bausch Health Companies Stock Is on Fire Today

By George Budwell - Aug 6, 2020 at 10:39AM

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Bausch's decision to carve out its eye care business into a stand-alone unit appears to be a hit with investors.

What happened

Shares of the Canadian drugmaker and eye care specialist Bausch Health Companies (BHC 9.73%) jumped by as much as 32% in pre-market trading Thursday morning. 

Although the company reported second-quarter earnings ahead of the opening bell this morning, the catalyst behind this double-digit move higher was clearly the announced spinoff of the eye health business Bausch + Lomb into a stand-alone unit. 

Two humanoid plastic figures pushing two puzzle pieces together.

Image source: Getty Images.

After all, Bausch's second-quarter earnings didn't exactly give investors much reason to celebrate today. The company missed the mark on several fronts in the second-quarter due to the COVID-19 pandemic.

So what

This spinoff should prove to be a win-win for the company and its shareholders over the long haul. It's no secret that Bausch's heavy debt load, which was incurred mostly under the former management team, has been weighing the company down for some time now. 

This split -- if done correctly -- could accelerate Bausch's debt repayment timeline and lead to higher levels of organic growth across both businesses post split. That's a promising setup for patient investors. 

Now what

Before investors get too excited, though, there are a still a number of logistical and regulatory hurdles to overcome prior to a formal spinoff. In fact, Bausch was rather light on the details about the timing of the split.

All we know for sure is that this healthcare company plans to report its Bausch + Lomb franchise as a separate segment beginning in the first quarter of 2021. So it may take a while for this transaction to round into shape.  

George Budwell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bausch Health Companies. The Motley Fool has a disclosure policy.

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