Amid swirling speculation, Bausch + Lomb (BLCO), a global leader in the contact lens supply industry, is reportedly exploring a potential sale in a bid to break away from its highly indebted parent company, Bausch Health (BHC). Driven by its strong performance, any potential sale could see a significant premium attached to the current valuation. Despite an impressive revenue projection of $4.7 billion for the year, Bausch Health is contending with an impending patent expiration and over $11 billion of debt maturing by 2028.
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This possible sale offers a promising solution. Private equity groups may be interested, and it would be an opportunity to appease leading shareholders while addressing the company’s debt issue. Against this backdrop, the company posted top-and-bottom-line beats for the most recent quarter. It raised its financial guidance for the year, making it an intriguing option for investors willing to endure the drama surrounding the parent company.
Bausch + Lomb Operating Under a Dark Cloud
Bausch + Lomb is an eye health company renowned globally as one of the largest contact lens suppliers. The firm operates within three main segments: Vision Care, Pharmaceuticals, and Surgical.
Bausch Health spun off Bausch + Lomb in 2022, though it maintains a controlling interest. It is reportedly contemplating a potential sale of Bausch + Lomb to alleviate financial pressure caused by a significant $11 billion debt due by 2028. This strategic move aligns with the company’s efforts to offload 88% of its stakes to shareholders, including influential investors Carl Icahn and John Paulson.
The sale consideration arose due to financial concerns, primarily from a staggering $21.5 billion debt and the upcoming patent expiration of Bausch Health’s principal revenue-generating drug, Xifaxan. If achieved, the sale could settle some of Bausch Health’s outstanding debt and assuage creditor worries about the firm’s balance sheet impact.
Bausch Health has turned down the recent debt-restructuring propositions suggested by bondholders, including Apollo Global Management and GoldenTree Asset Management. The bondholders offered to reorganize debt without filing for bankruptcy and proposed swapping some debt for equity in Bausch + Lomb.
Focus on Future Growth
The speculation surrounding the company’s debt restructuring attempts and a potential sale hangs like a dark cloud perpetually threatening stormy weather. Yet, management at Bausch + Lomb continues to focus on the company’s growth, recently securing FDA approval for its new enVista Envy full range of vision intraocular lens (IOL), which facilitates a continuous range of vision with excellent dysphotopsia tolerance. Furthermore, the company has introduced a proprietary digital sales platform that employs AI and machine learning to deliver custom guidance for eye care professionals. It has also announced the launch of Opal, an eCommerce marketplace for digital products.
Bausch + Lomb’s Recent Financial Results
Bausch + Lomb reported strong third-quarter results, with revenue of $1.2 billion showing a robust 19% year-over-year increase and outperforming analysts’ projections by $30 million. The operating income for the period was $43 million, marking an increase of $3 million from the third quarter of 2023. This was primarily due to a rise in gross profit contribution, although this was somewhat offset by augmented costs in selling, advertising, and promoting initiatives. Notably, the company achieved a net income of $4 million compared to the net loss of $84 million observed in the same quarter of 2023.
On the other hand, adjusted net income decreased by $30 million to $46 million. Despite this adjustment, the firm’s operational cash flow increased substantially by $106 million to $154 million. Non-GAAP earnings per share (EPS) were $0.17, beating consensus expectations by $0.01.
As of the quarter’s end, Bausch + Lomb reported having $350 million in cash, cash equivalents, and restricted cash.
Following Q3 results, BLCO’s management has updated revenue guidance for the full Fiscal year of 2024, projecting full-year revenue of $4.725 to $4.825 billion. The full-year adjusted EBITDA, excluding Acquired IPR&D (non-GAAP), is expected to be between $850 and $900 million. However, the company anticipates foreign exchange headwinds, which could negatively affect revenues by around $75 million.
Is BLCO a Buy?
Despite the parent company’s challenges, Bausch + Lomb’s stock has posted a solid 20% return over the past year. It trades at the high end of its 52-week price range of $13.16 – $21.69 and shows ongoing positive price momentum as it trades above the 20-day (20.03) and 50-day (18.87) moving averages. Its P/S ratio of 1.5x sits well below the Medical Instruments & Supplies industry average of 14.9x, suggesting it is trading at a deep relative value.
Analysts following the company have been bullish on BLCO stock. Bausch + Lomb Corporation is rated a Strong Buy overall, based on the aggregate recommendations recently issued by ten analysts. The average price target for BLCO stock is $22.71, representing a potential upside of 10.73% from current levels.
Bottom Line on BLCO
Given the ongoing turmoil of its parent company, this global leader in eye health care could see a potential sale at a substantial premium on the company’s current valuation. Given its impressive performance, recently raised financial guidance and a bullish outlook from analysts, BLCO presents a potentially enticing investment opportunity for value-oriented investors who can weather the parent company’s financial storms.
