Is Bausch Health (BHC) Stock Under Stress For Good Reason?

Bausch Health Companies (BHC) has been in the spotlight recently for participating in a stalking horse bid to scoop up Synergy Pharmaceuticals (SGYP) and save the company from bankruptcy. Now, the company is dealing with another issue – a potential liability due to its connection to Johnson & Johnson. Following a Reuters report that the company knew for decades about asbestos in its Baby Powder, BHC stock has been down due to concerns that the company is responsible since BHC did acquire rights to a similar product called J&J’s Shower to Shower talc powder in 2012.

Morgan Stanley’s David Risinger says the claims are out of control and overblown. He even goes so far as to say that the company has no liability in the matter whatsoever. In fact, the analyst uses material released by the company to strengthen his argument – which says the potential liability along with the fees and costs coming out of this lawsuit is subject to indemnification obligations of J&J, which will be owed to the company and will be reimbursed by J&J. So it’s possible BHC could be looking at a big payout. With that in mind, Risinger reiterates an Overweight rating with a price target of $32. (To watch Risinger’s track record, click here)

The analyst also suggests that BHC can’t be held fully accountable since the biopharmaceutical only held the rights to the product for six years and this suit stretches back with evidence of asbestos found in the powder from much earlier. Additionally, Risinger notes BHC has been successful in obtaining dismissals of related cases, which could be a benefit to the company for its present legal concern.

“BHC changed language between its 2Q:18 and 3Q:18 10Q related to the disclosure of this legal risk. BHC added the sentence “While J&J continues to indemnify the Company, the Company has initiated proceedings in arbitration against J&J relating to the scope and amount of such indemnification.” Regarding this topic, IR conveyed to us that the company’s pursuit of arbitration should be perceived as upside (rather than downside) risk, since Bausch is seeking a larger amount of reimbursement from J&J,” the analyst concluded.

When it comes to Wall Street, TipRanks analytics shows BHC has a “Moderate Buy” consensus, as out of 12 analysts, 8 are bullish, 3 are sidelined and 1 is bearish. The consensus price target of $31.08 shows a potential upside of around 65%. (See BHC’s price targets and analyst ratings on TipRanks)


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