Markets
BHC

Why Shares of Bausch Health Companies Rocketed Higher in June

What happened

Bausch Health Companies (NYSE: BHC) delighted its loyal shareholders last month by gaining an eye-popping 21.6%, according to data from S&P Global Market Intelligence. What sparked this breakout? 

While most healthcare stocks rebounded in June after a rough few months, Bausch's shares got an additional boost from the news of its U.S, launch for its Bausch+Lomb ULTRA multifocal contact lenses for patients with astigmatism and presbyopia.

As an added bonus, Bausch also announced the commercial launch of its plaque psoriasis lotion Duobrii in the United States, as well as the repayment of $100 million in debt toward the tail end of the month. This latest debt repayment eliminated all mandatory amortization for the first quarter of 2020. 

Black and white chalkboard bar chart showing a series of columns, with an arrow above them, illustrating a rebounding trend.

Image Source: Getty Images.

So what

Bausch is in the midst of a slow-motion turnaround. And the future success or failure of this proposed comeback hinges on the launch of new, high-value growth products such as Duobrii. Bausch needs to keep growing its free cash flows in order to deleverage in a timely manner. In the most recent quarter, for example, its debt-to-equity ratio stood at a jaw-dropping 880, giving it one of the most highly leveraged balance sheets in all of healthcare.  

Now what

Can Bausch's stock keep heading higher? Wall Street seems to think so -- at least based on the current consensus price target of $30.93. (Bausch presently trades at about $25.60.) Despite Wall Street's optimism, though, there are some solid reasons investors might want to remain cautious with this comeback story.

For one, the company is years away from cleaning up its balance sheet, limiting its financial capacity for value-creating business development activities. Underscoring this point, the company recently cut a deal to acquire Synergy Pharmaceuticals' woefully underperforming medication Trulance. If Bausch was in a better financial position, it's highly doubtful that it would have taken on such an onerous reclamation project. Put simply, the company might need a hefty dose of luck along the way to complete its long turnaround, thanks to its limited financial capacity.  

10 stocks we like better than Bausch Health Companies
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Bausch Health Companies wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of June 1, 2019

 

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

BHC

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More