Bausch Health's stock soars on solid quarterly results, but we have concerns about the recovery

Published Thu, Feb 23 20231:48 PM ESTUpdated Thu, Feb 23 20231:50 PM EST

Club holding Bausch Health Companies (BHC) on Thursday reported fourth-quarter results ahead of expectations, even as an ongoing patent dispute keeps us skeptical about the stock's ability to stage a sustained rebound. Sales rose 4% organically year-over-year, to $2.2 billion, outpacing analysts' forecasts for sales of $2.14 billion, according to estimates compiled by Refinitiv. Sales were down marginally on a reported basis due to acquisitions and divestitures. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) tumbled 9.5% annually, to $823 million, but exceeded the $812 million consensus estimate, Refinitiv data showed. Shares of Bausch were trading up 9.55%, at $9.47 apiece, in afternoon trading Thursday. Bottom line The Canadian specialty pharmaceuticals company reported solid results for the fourth quarter, along with favorable forward guidance. At the same time, an ongoing legal dispute over Bausch's patent of Xifaxin — a Salix Pharmaceuticals product used to treat irritable bowel syndrome with diarrhea — remains a key overhang on the stock. Bausch management on Thursday did not offer additional information, other than to reiterate its confidence in the strength of the company's patents. On a more positive note, the company said Thursday it had reached a tentative settlement with the Internal Revenue Service over a tax issue dating back to 2017. Though not yet finalized, management "[does] not expect the outcome will have a material impact on the company's full year results or cash flows." Lastly, the team continues to work toward the unraveling of its remaining roughly 88% stake in eyecare company Bausch + Lomb (BLCO). Bausch Health previously started the separation process via an initial public offering of Bausch + Lomb in May 2022. Though the results and underlying trends are positive, the Xifaxin overhang prevents us from upgrading shares at this point. We maintain our 4 rating on the stock. Fourth quarter Management noted Thursday that its Salix division saw "encouraging Xifaxan script growth in all channels other than the long-term care channel." Internationally, Bausch continued to see growth in key markets, including Poland, Mexico and Canada, with both existing brands and new products. Medical aesthetics unit Solta performed well in the Asia Pacific region outside of China, though management noted that they are seeing a continued recovery in China since the lifting of COVID-19 restrictions in recent months. Results at the diversified products division — which includes neurology pharmaceutical products, generics and dentistry products — were hampered by generic competition. Notably, as Bausch Health owns most of Bausch + Lomb, the latter's financials still appear on Thursday's results. Guidance Looking ahead, management provided full-year revenue guidance for 2023 that came in ahead of expectations. (Jim Cramer's Charitable Trust is long BHC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A worker demonstrates a Bausch vial filling machine during the International Pharmaceutical Expo (Interphex) in New York, U.S., on Tuesday, March 21, 2017. Interphex is a pharmaceutical, biotechnology, and medical device development and manufacturing event offering access to new business trends and strategies. Photographer: Timothy Fadek/Bloomberg via Getty Images

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