Heads up, Jim Cramer fans. Today, the Mad Money host announced a new position in Bausch Health (NYSE:BHC) to capitalize on the uncertainty that the omicron variant may bring. Cramer likened BHC stock as a defensive position that will increase his portfolio’s healthcare exposure. Furthermore, Cramer disclosed that his charitable trust purchased 1,500 shares of BHC stock at roughly $24.68 per share. Therefore, the position will represent 0.9% of his total portfolio. Shares of BHC stock have increased by 4% since Cramer purchased shares.
Well, let’s jump right into the details involving Cramer’s newest addition.
What to Know as Cramer Buys BHC Stock
- Cramer is a big supporter of Bausch Health CEO Joe Papa. In fact, Cramer mentioned that since Papa became CEO in 2016, the company’s debt has been reduced by $10 billion. Papa was also instrumental in resolving legal charges that involved improper revenue recognition and misleading disclosures.
- Under Papa’s leadership, research and development as a percentage of revenue has nearly doubled to 6%.
- Additionally, Cramer believes that Bausch Health will ultimately operate under three separate entities: “an eye health business, a fast growing medical aesthetics business, and a diversified pharmaceutical operation.”
- Solta is Bausch Health’s medical aesthetics business, which will be separated in a 2022 initial public offering (IPO). The fast growing company has generated $219 million in sales for the first three quarters of 2021. Earnings before interest, taxes, depreciation and amortization (EBITDA) grew at a compounded annual growth rate (CAGR) of 87% from 2017 to 2020.
- To value Solta, Cramer used comparable company analysis and observed that industry peer Inmode (NASDAQ:INMD) trades at 30X 2o22 projected EBITDA figures. Consequently, he projected next year’s EBITDA to be $171.5 million. That would imply a market capitalization of $5.15 billion based on a 30X multiple for 2022 projected EBITDA.
- Cramer similarly valued Bausch + Lomb, the eye health business of Bausch Health. Indeed, he projected $947 million in EBITA for Bausch + Lomb. Using comparable company analysis, Cramer observed that industry peer Alcon trades at a 22.4X multiple based on 2021 adjusted EBITDA expectations. A 22.4X multiple paired with Bausch + Lomb’s FY2021 $947 million EBITA estimate would imply a market cap of $21.1 billion.
- Finally, Cramer values the last part of Bausch Health, Bausch Pharma, at $6 billion. To arrive at this figure, Cramer used the company’s current 2.6X EBITDA multiple and multiplied it by the projected 2021 EBITDA number, less the EBITDA contributions from Solta and Bausch + Lomb.
- Combined, the three entities are worth roughly $33.3 billion. After subtracting out debt of $21.9 billion, the estimated market cap is $10.4 billion.
- Based on sum-of-the-parts (SOTP) valuation, Bausch Health is worth $10.4 billion. Divide that number by 359.33 million shares outstanding and you arrive at Cramer’s $29 price target for Bausch Health. However, he notes that this is a conservative estimate that has plenty of room for upside.
On the date of publication, Eddie Pan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.