Bausch Health Companies (BHC), a troubled club in the stock market, delivered impressive quarterly results that surpassed expectations. However, despite this positive outcome, the stock is still struggling to regain its footing.
In the second quarter, BHC experienced a 10% increase in sales, reaching a total of $2.17 billion, which exceeded the estimated $2.04 billion. When adjusted for foreign currency fluctuations and other factors, organic sales rose by 11% compared to the same period last year. Additionally, adjusted EBITDA grew nearly 4% year-over-year to $727 million, surpassing the consensus estimate of $721 million.
Traditionally, adjusted earnings per share are used to assess a company’s performance. However, in the case of BHC, due to its debt load and other factors, adjusted EBITDA provides a more accurate reflection of the company’s actual performance, hence being the number Wall Street focuses on.
Despite the strong quarterly results and an optimistic outlook from management, the stock saw an initial rally of almost 9%, but investor optimism tempered as concerns over ongoing Xifaxan patent litigation persisted. A favorable decision in this regard could act as a catalyst for the stock. Another potential catalyst is the monetization of BHC’s stake in Bausch + Lomb (BLCO). While management confirmed their plan to distribute 80% of BLCO in a tax-free manner, the timing of this distribution remains uncertain.
Considering the uncertainties surrounding both the Xifaxan litigation and the monetization of BLCO, it is prudent to wait for more information before making any investment decisions. Therefore, we recommend maintaining a rating of 4 and refraining from allocating additional capital to BHC at this time.
In their earnings release, BHC management announced a change in their approach to handling their stake in Bausch + Lomb. Instead of a spinoff, they now contemplate a tax-free reduction of capital as the optimal method for distributing the stake. Though the implications of this change are not entirely clear, management claims that it offers additional strategic flexibility for both companies.
Apart from the BLCO update, BHC’s company-wide results for the second quarter were promising. Excluding BLCO, revenue rose by 10% to $1.13 billion, surpassing expectations. The Salix division saw an 11% growth in sales, with Xifaxan sales increasing by 9%. International sales benefited from strength in EMEA and Canada, as well as a rebound from the previous year’s weakness. The Solta Medical aesthetics unit experienced strong growth in Asia Pacific.
Furthermore, BHC management revised their full-year revenue guidance for 2023, increasing the projected range to $4.5 billion to $4.65 billion. Their adjusted EBITDA outlook remained unchanged.
It is worth noting that Jim Cramer’s Charitable Trust holds a position in BHC. However, as a CNBC Investing Club subscriber, please be aware that the information provided does not create any fiduciary obligation or duty, and no specific outcome or profit is guaranteed. Please refer to our terms and conditions, privacy policy, and disclaimer for a complete understanding of our investment advice.
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