Stock Groups

We’re increasing our price target on a club health stock


Joseph Papa, CEO, Bausch Health

Scott Mlyn | CNBC

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We have raised our price target on the shares Bausch Health (BHC)To $36, an increase of $29, in comparison to the previously mentioned company’s presentation at the annual J.P. Morgan Healthcare Conference on Jan. 12 — the most newsworthy healthcare conference of the year. At the event, we expect to hear positive updates on the company’s strategic initiatives — most notably, the upcoming (date not yet announced, though expected early this year) IPO spinoff of Solta Medical. Solta represents the fastest growing global medical aesthetics firm (32% compounded anual sales growth rate, or “CAGR”) between 2017 and 2020.

Recall that when we created the position, we performed a sum-of-the parts analysis. We applied a 22.4x adjusted EBITDA multiple to Bausch + Lomb in alignment with Swiss peer Alcon. A conservative 2.6x multiple was used for the Bausch Pharma remaining business, which is the most difficult aspect of the company.

We also used a 30x adjusted EBITDA multiplier on our 2021 EBITDA estimation of $171.5 Million. This was despite the fact that peer estimates were lower. Beauty Health Co (SKIN)InMode and InMode were trading at about 73x or 30x their forward adjusted EBITDA estimates at the time this alert was issued.

We believe that investors will be more focused on Solta’s IPO and will see further details on its timeline at the conference next week. Shares will also benefit from this increase in investor attention. Our model in relation to Solta will be updated and revised. The other segments will remain unchanged.

Since we are now entering 2022 and anticipate more information on Solta IPO over the coming days and weeks, we plan to bring forward FY2022’s EBITDA numbers. Concerning the growth rate that was used to generate the estimate, however, we feel we were too conservative when we first applied a 27% rate (the highest line growth rate) for EBITDA. The compounded rate at 87% is from 2017 through 2020.

It is obvious that the 87% of these companies benefit from starting with a low base. Therefore, it must be taken into account. The adjusted EBITDA increased 55% YoY in FY2020, compared to 81% and 140% respectively in FY2019. Assuming a 40% growth rate for 2021, followed by a 35% increase in 2022 our FY2021 estimation is $171.5million to $189million. Our FY2022 estimate is $255 million.

We will maintain our forward-valuation multiple at 30x as InMode has predicted, given that the growth rate of InMode is falling to an equal level with InMode’s future EBITDA CAGR (39.5% between FY2019 and FY2023, FactSet).

We generate an estimated enterprise value of $7.65 Billion using FY2022 adjusted EBITDA. This is up from $5.15 Billion in our previous estimate. This updated number is added to the Bausch + Lomb & Bausch Pharma target of $6 billion and $21.1 billion respectively. We get a total SOTP-based enterprise worth (market cap + net credit) of $34.75 Billion. Add the net debt of $21.9billion to get an equity value of $12.85billion, which is higher than our earlier estimate of $10.4billion or $36 each share.

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 (Jim Cramer’s Charitable Trust has been long BHC.