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Bausch Health Stock: Why There are Better Opportunities Elsewhere

Story Highlights

Bausch Health was once the darling of Wall Street when it was known as Valeant. However, controversy and a heavy debt load have caused the company to seriously underperform in recent years. Will this still be the case, going forward?

Bausch Health Companies (BHC) (TSE: BHC) is a global specialty pharmaceutical, consumer health, and medical device company with a focus on branded products for the dermatology, gastrointestinal, and ophthalmology markets.

Although analysts have a favorable outlook of the company, there is little reason to believe that it will be a strong performer in the long term.

Measuring Efficiency

Bausch Health needs to hold onto a lot of inventory in order to keep its business running. Therefore, the speed at which Bausch can move inventory and convert it into cash is very important in predicting its success. To measure its efficiency, I will use the cash conversion cycle, which shows how many days it takes to convert inventory into cash. It is calculated as follows:

CCC = Days Inventory Outstanding + Days Sales Outstanding – Days Payables Outstanding

Bausch Health’s cash conversion cycle is 168 days, meaning it takes the company 168 days for it to convert its inventory into cash. In the past several years, there has been no clear trend to indicate whether efficiency has been improving or not. In the past 10 years, it has ranged from about 166 days to 209 days, but the overall trend has been sideways.

In addition to its conversion cycle, let’s also take a look at Bausch Health’s gross margin trend. Ideally, I would like to see a company’s margin expand each year. This is, of course, unless its gross margin is already very high, in which case it is acceptable for it to remain flat.

In Bausch Health’s case, its gross margin has remained relatively flat in the past several years but has been slightly contracting. This isn’t ideal because it does not allow the company the opportunity to increase its free cash flow or reinvest a larger percentage of revenue into growth initiatives. Its gross margin peaked in Fiscal 2015 at 76.6%, and it is now at 71.5% for the past 12 months. 


To measure Bausch Health’s risk, I will first check if financial leverage is an issue. I do this by looking at its debt-to-free cash flow ratio. Currently, this number stands at 34.5x, which is the result of the massive debt load the company took on years ago to fund its numerous acquisitions.

Overall, debt could become a material risk for the company because its interest coverage ratio is 1.2x (calculated as free cash flow divided by interest expense). In other words, it can cover its annual interest expenses only 1.2x over using its operating income.

Therefore, there isn’t much room for operational error or much money left over to pay down the debt. This is especially worrisome as interest rates continue to rise in an attempt to combat inflation.

However, there are other risks associated with the company. According to Tipranks’ Risk Analysis, Bausch Health has disclosed 57 risks in its most recent earnings report. The highest amount of risk came from the Legal & Regulatory category.

The total number of risks has increased over time, as shown in the picture below.

Analyst Recommendations

Bausch Health has a Moderate Buy consensus rating based on three Buys and two Holds assigned in the past three months. The average BHC price target of $14.80 implies 73.9% upside potential.

Final Thoughts

Bausch Health was once the darling of Wall Street when it was known as Valeant. However, controversy and a heavy debt load have caused the company to seriously underperform in recent years. As things currently stand, it is likely that there are better opportunities in the market.


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