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Why Bausch Health Companies Is Plunging Today

By Zhiyuan Sun – Aug 3, 2021 at 3:53PM

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The turnaround isn't happening as fast as investors expected.

What happened

Investors of healthcare giant Bausch Health Companies (BHC 0.89%) are having a rather rainy afternoon. Shares are down 11%, to $26.32, as of 2:30 p.m. EDT, after the company announced disappointing guidance in its second-quarter earnings.

During the quarter, Bausch Health improved its revenue by 26% year over year to $2.1 billion. Simultaneously, its operating income less non-cash items (EBITDA, or earnings before interest, taxes, depreciation, and amortization) increased 33% to $826 million. However, due to asset divestitures, product recalls, and unfavorable foreign currency movements, the company lowered its revenue guidance for the year by $200 million in the range of $8.4 to $8.6 million. In addition, Bausch Health is spinning off its dermatology laser hardware Solta Medical subsidiary into an independent publicly traded company.

Doctor holding paperwork in front of patients.

Image source: Getty Images.

So what 

Bausch Health is knee-deep in debt. The leveraged acquisitions of its present day eye care, gastrointestinal, and dermatology drug businesses added $24.6 billion in liabilities on its balance sheet. That's about eight times the EBITDA the company generated in the last 12 months. Shareholders clearly didn't appreciate the downside revenue guidance when it is in dire need of growth. What's more, the Solta Medical spinoff will raise cash for the parent company at the expense of divesting about $253 million in annual revenue in the process.

Now what 

The stock already has a big part of its risks priced in. As a matter of fact, it is trading for just 6.3 times earnings. The cheap valuation has attracted billionaire hedge fund investors like Carl Icahn, who are betting that Bausch Health can turn things around. Hence, investors on the hunt for bargains should consider buying today's dip as an opportunity for entry. But stay current on liquidity developments surrounding the healthcare stock.  

Zhiyuan Sun 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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