Bausch Health Companies (TSX:BHC) could have traded towards new 52-week highs following its last quarterly earnings report. Instead, the stock selloff and rising bearishness for drug stocks sent BHC shares lower.
With Teva Pharmaceuticals (NYSE:TEVA) settling on Opioid-related damages and Mylan (NASDAQ:MYL) shares down after its earnings report, what do these firms have to do with Bausch stock falling?
Teva and Mylan have company-specific problems that have nothing do with Bausch Health. But their issues are scaring away Bausch investors. Not only are Teva and Mylan shares more attractive from a valuation aspect but markets are re-visiting fears over Bausch’s debt levels.
The risks of the government limiting the price hikes for drugs is weighing on Bausch and drug stocks as a whole.
Savvier investors should take notice of the steps Bausch is taking to strengthen its business. On May 9, it tendered $1.5 billion of Notes due in 2023 and $2.7 billion worth of Notes. By dealing with 40% of the debt due that year, the company may manage the rest of the debt through free cash flow from operations. Extending the debt maturity will give the company more time to improve the core business.
The debt reduction will come without a share dilution, which prevents hurting existing investors. This implies that the market is overreacting and the stock’s rapid fall to below $21 at the end of last week will eventually reverse.