Morgan Stanley Turns Bullish On Bausch Health: 'We Expect 2018 To Be The Last Year Of Declining Financials'

Bausch Health Companies Inc BHC, formerly Valeant Pharma, holds upside potential of about 32 percent, according to Morgan Stanley.

The Analyst

Analyst David Risinger upgraded Bausch from Equal-weight to Overweight and set $32 price target. 

The Thesis

Bausch's growth is expected to improve in 2020, courtesy of the sales ramps of new products that are likely to boost investor enthusiasm and help pay down debt, enhancing equity value over time, Risinger said in the Monday upgrade note. (See his track record here.) 

The analyst noted an improvement in prescription trends for the glaucoma treatment Vyzulta following the launch of a 2.5-ml monthly size and a strong ramp in the over-the-counter eye redness drops Lumify.   

Risinger expects the company's strong presence in dermatology to result in a solid new sales ramp for two topical psoriasis products, Bryhali and Duobrii.

Incorporating this improving growth outlook, Morgan Stanley extended its model from 2020 to 2023.

"We expect 2018 to be the last year of declining financials, 2019 to be flattish and then 2020 and beyond to show solid growth," Risinger said.

The analyst estimates a five-year CAGR of 4 percent for revenue, 7 percent for EBITDA and 13 percent for EBITDA between 2018 and 2023.

Growing EBITDA in 2020 and beyond will help reduce net debt/EBITDA from 7.1 tines in 2017 to 4.2 times in 2023, the analyst said.

With a wide bull-to-bear skew due to Bausch's high leverage, small changes in enterprise value could drive large changes in equity value, Risinger said. 

The Price Action

Bausch shares were up 4.63 percent at $25.29 at the time of publication Monday. 

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