Bausch Health (BHC) is the definition of a momentum stock. It trades at nearly $22 and has delivered a 98% return to investors. The stock has benefited from the melt up in financial markets. The S&P 500 (SPY) is up over 2% over that time frame. Has the U.S. economy grown enough to justify the perpetual run-up in stocks? I do not believe so. Corporate tax cuts and share repurchases will run their course at some point.

Is BHC’s run-up justified? I doubt it. CEO Joe Papa has pared debt, but has not accomplished much else. Over the past year the company’s revenue and EBITDA have fallen by 5% and 7%, respectively. BHC bulls think there is more room to grow. As long as the company continues to tread water on the top line and slowly repay debt then there could be more flows into the stock. However, I believe a key growth engine could be disrupted and investors and analysts will eventually have to price this risk into the shares.

Bausch Health’s Top Line Remains Dismal

In Q2 2018 Bausch Health delivered revenue of $2.1 billion and a net loss of $327 million. The company has been hiving off assets, which may have clouded comparisons to prior years. Q2 revenue was down 5% Y/Y, which was nothing to write home about.

Revenue from Salix was up by double-digits, while every other segment experienced declines. The company’s core businesses (Salix and Bausch & Lomb) represented 78% of total revenue, up from 72% in the year earlier period. Shocking The Street, a premium investment service the Shock Exchange runs in conjunction with Seeking Alpha, believes a key growth engine is about to be disrupted. Read more:

 

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